U.P.State Industrial Development Corporation Ltd., Kanpur V. Asstt. Commissioner of Income Tax-6, Kanpur

ITA 448/LKW/2012

• Counselvise Citation: 44823714 RSA 2012
• Duration Of Justice: 2 year(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 06-08-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: S K GARG
• Keywords: Gift; Depreciation; Rectification of order; Opportunity of being heard; Principle of natural justice; Earning of tax free income; Retrospective amendment; Question of law; Bad and doubtful debts; Procedural lapse; Competent authority; Benefit of exemption; Reason to believe; Reassessment proceedings; Capital expenditure
• Section: 143(3); 80HHC; 14A; 260A; 80IB; 37(1); 148; 37; 28; 154

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.448/LKW/2012 ASSESSMENT YEAR:2007 - 08 U.P. STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. (UPSIDC) A - 1/4, LAKHANPUR, KANPUR. PAN:AAACU1759K VS. DY.C.I.T. - 6, KANPUR. (APPELLANT) (RESPONDENT) APPELLANT BY SHRI S. K. GARG, ADVOCATE RESPONDENT BY SHRI MANOJ KUMAR GUPTA, CIT, D.R. DATE OF HEARING 11/07/2014 DATE OF PRONOUNCEMENT 0 5 /09/2014 O R D E R PER A. K. GARODIA, A.M. THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT(A) - I, KANPUR DATED 27/03/2012 FOR THE ASSESSMENT YEAR 2007 - 2008. 2. GROUND NO. 1 & 2 ARE INTER CONNECTED, WHICH READ AS UNDER: 1. BECAUSE THE 'CIT(A)' HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT 'THERE IS NO LEGAL REQUIREMENT THAT BEFORE ISSUING NOTICE UNDER CLAUSE (II) OF SECTION 143(2), IT WAS INCUMBENT UPON THE ASSESSING OFFICER TO FORM REASON TO BELIEVE' OR TO RECORD SUCH REASO NS IN WRITING AND IN UPHOLDING THE VALIDITY OF NOTICE ISSUED UNDER SECTION 143(2) AND THEREBY THAT OF THE ASSESSMENT ORDER DATED 31,12.2009 (PASSED IN PURSUANCE OF THE SAID NOTICE). 2. BECAUSE THE VIEW TAKEN BY THE 'CIT(A)' IN THE MATTER OF ISSUANCE AND SERVICE OF NOTICE UNDER SECTION 143(2), IS 2 BASED ON MISCONCEPTION /NON - APPRECIATION OF THE PROVISIONS OF LAW AS CAME TO BE INTERPRETED IN LARGE NUMBER OF CASE LAWS AND ON A DUE CONSIDERATION OF CORRECT POSITION OF LAW, IT DESERVES TO BE HELD THAT NOTICE UN DER SECTION 143(2) NOT BEING ISSUED IN ACCORDANCE WITH THE PROVISIONS OF LAW, THE ASSESSMENT ORDER DATED 31.12.2009 CAPTIONED AS ORDER UNDER SECTION 143(3) IS WHOLLY WITHOUT JURISDICTION. 3. IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT IN THE P RESENT CASE, THE CASE WAS SELECTED FOR SCRUTINY AS PER COMPUTER SELECTION AND THERE WAS NO APPLICATION OF MIND BY THE ASSESSING OFFICER AS REQUIRED U/S 143(2)(I) OF THE ACT AND HENCE, THE NOTICE ISSUED BY THE ASSESSING OFFICER U/S 143(2) IS WHOLLY WITHOUT JURISDICTION. IN SUPPORT OF THIS CONTENTION, RELIANCE WAS PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: ( I ) COMMISSIONER OF INCOME - TAX VS RAJEEV SHARMA [2011] 336 ITR 678 (ALL) ( II ) COMMISSIONER OF INCOME - TAX VS SUNDERLAL (LATE) [1974] 96 ITR 310 (ALL) ( III ) SIRPUR PAPER MILL LTD. VS COMMISSIONER OF WEALTH - TAX [1970] 77 ITR 6 (SC) ( IV ) INCOME - TAX OFFICER VS EASTERN SCALES (PVT.) LTD. [1978] 115 ITR 323 (CAL) ( V ) GORDHANDAS DESAI P. LTD. VS V.B. KULKARNI, ITO [1981] 129 ITR 495 (BOM) ( VI ) GUJARAT GAS CO. LTD. VS JOINT COMMISSIONER OF INCOME - TAX (ASSESSMENT) [2000] 245 ITR 84 (GUJ) ( VII ) ORIENT PAPER MILLS LTD. VS. UNION OF INDIA [1969] AIR 48. ( VIII ) UNION OF INDIA VS SHEO SHANKER SITARAM [1974] 95 ITR 523 (ALL) 4. AS AGAINST THIS, LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE DO NOT FIND ANY FORCE IN THIS CONTENTION OF LEARNED A.R. OF THE ASSESSEE THAT IF THE CASE IS SELECTED FOR SCRUTINY WITH THE AID OF COMPUTER THEN THERE IS NO APPLICATION OF MIND BY THE 3 ASSESSING OFFICER AS REQUIRED U/S 143(2)(I) OF THE ACT. NOW WE EXAMINE THE APPLICABILITY OF VARIOUS JUDGMENTS CITED BY LEARNED A.R. OF THE ASSESSEE. 5.1 THE FIRST JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS THE JUD GMENT OF HON'BLE ALLAHABAD HIGH COURT RENDERED IN THE CASE OF RAJEEV SHARMA (SUPRA). IN THIS CASE, THE QUESTIONS OF LAW BEFORE HONBLE HIGH COURT ARE AVAILABLE IN PARA 13 OF THIS JUDGMENT AND THE SAME ARE REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: '(A) WHETHER NOTICE UNDER SECTION 143(2) OF THE ACT ISSUED AFTER THE ASSESSEE PROCLAIMED HIS ORIGINAL RETURN 'AS TRUE AND CORRECT' IS NOT A VALID NOTICE JUST BECAUSE IT WAS NOT ISSUED WITH REFERENCE TO A PENDING RETURN ? (C) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED INCOME - TAX APPELLATE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT NON - ISSUANCE OF NOTICE UNDER SECTION 143(2) OF THE ACT HAS VITIATED THE ASSESSMENT ORDER AND IGNORING THAT ISSUANCE OF SUCH NOTICE IS A MACHINERY PRO VISION AND DOES NOT GO TO THE ROOT OF THE ASSESSMENT, MORE SO WHEN THE ASSESSEE WAS AFFORDED AND HE AVAILED OF FULL OPPORTUNITY ? (D) WHETHER NOTICE UNDER SECTION 143(2) OF THE ACT IS A MACHINERY PROVISION AND AS PER THE WORDING OF SECTION 148(1) 'SO FA R AS MAY BE' PROVISIONS OF SECTION 143(2) WITH REFERENCE TO REASSESSMENT PROCEEDINGS UNDER SECTION 148 NEED NOT BE APPLIED INTO BUT ONLY TO THE EXTENT POSSIBLE? (E) WHETHER THE ASSESSEE HAS DISCHARGED HIS ONUS BY FURNISHING THE NAME, CONFIRMATION LETTER, COPY OF THE NRE BANK ACCOUNT AND PASSPORT OF THE NRI DONOR EVEN THOUGH THE IDENTITY OF THE DONOR COULD NOT BE ESTABLISHED WHAT TO TALK ABOUT PROVING HIS CREDITWORTHINESS AND THE GENUINENESS OF THE TRANSACTION ?' 5.1.1 IN THIS CASE, IT WAS HELD THAT ISSUANCE OF NOTICE U/S 143(2) IS MANDATORY AND OMISSION ON THE PART OF THE ASSESSING AUTHORITY TO ISSUE NOTICE U/S 143(2) CANNOT BE A PROCEDURAL IRREGULARITY AND THE SAME IS NOT CURABLE . IN THE PRESENT CASE, IT IS NOT THE C ASE OF THE ASSESSEE THAT THE NOTICE U/S 143(2) WAS 4 NOT ISSUED AND SERVED ON THE ASSESSEE. THIS JUDGMENT IS NOT RENDERING ANY HELP TO THE ASSESSEE. 5.2 THE NEXT JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS THE JUDGMENT OF HON'BLE ALLAHABAD HIGH COURT RENDERED IN THE CASE OF SUNDERLAL (LATE) (SUPRA). IN THIS CASE , THE DISPUTE BEFORE HON'BLE ALLAHABAD HIGH COURT WAS THAT AS TO WHETHER CIT SHOULD GIVE REASONS FOR PASSING ORDER OF REVISION. IN THAT CASE, THE FACTS WERE THAT THE CIT HAD AUTHORIZED FOR FI LING OF APPEAL AGAINST THE ORDER OF AAC FOR ASSESSMENT YEAR 1960 - 61 AND THEREAFTER , HE INITIATED REVISION PROCEEDINGS U/S 33B OF INDIAN INCOME TAX ACT, 1922 RELYING SOLELY ON THE ORDER OF AAC. IT WAS HELD IN THAT CASE THAT HAVING AUTHORIZED TO FILE THE AP PEAL AGAINST THE ORDER OF AAC FOR THE SAME ASSESSMENT YEAR, IT CANNOT BE ACCEPTED THAT THE CIT WAS HAVING REASONS THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS A N D PREJUDICIAL TO THE INTEREST OF THE REVENUE BECAUSE IF THAT WOULD HAVE BEEN THE CASE, THE CIT COULD NOT HAVE AUTHORIZED THE ASSESSING OFFICER TO FILE AN APPEAL AGAINST THE ORDER OF THE AAC. HENCE, IT IS NOT ED IN THAT CASE THAT THE MATERIALS WERE ON RECORD TO ESTABLISH THAT THE ORDER OF REVISION PASSED BY CIT WAS WITHOUT REASONS WHEREAS IN THE PRESENT CASE , THE ONLY OBJECTION IS THAT SINCE THE SELECTION FOR SCRUTINY WAS MADE BY THE ASSESSING OFFICER WITH THE HELP OF THE COMPUTER AND THEREFORE, THERE IS NO APPLICATION OF MIND. IN FACT IN THE PRESENT CASE, APART FROM APPLYING HIS OWN MIND, TH E ASSESSING OFFICER TOOK THE HELP OF COMPUTER ALSO AND THEREFORE, IT CANNOT BE SAID THAT IN THE PRESENT CASE, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY WITHOUT APPLICATION OF MIND. THEREFORE, THIS JUDGMENT IS ALSO NOT RENDERING ANY HELP TO THE AS SESSEE. 5.3 THE NEXT JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF SIRPUR PAPER MILL LTD. (SUPRA). IN THAT CASE , IT WAS HELD THAT IN EXERCISE OF POWER U/S 25 OF THE ACT, THE COMMISSIONER MUST BRING TO BEAR AN UNBIASED MIND, CONSIDER IMPARTIALLY 5 THE OBJECTIONS RAISED BY THE AGGRIEVED PARTY AND DECIDE THE DISPUTE ACCORDING TO PROCEDURE CONSISTENT WITH THE PRINCIPLES OF NATURAL JUSTICE. IT WAS ALSO HELD THAT THE COMMISSIONER CANNOT PERMIT HIS JUDGMENT TO BE INFLUENCED BY MATTERS NOT DISCLOSED TO THE ASSESSEE . IN THE PRESENT CASE, THE FACTS ARE TOTALLY DIFFERENT. NOTHING HAS BEEN BROUGHT ON RECORD BY THE LEARNED A.R. OF THE ASSESSEE THAT ANY DISPUTE WAS RAISED OR COULD HAVE BEEN RAISED BEFORE THE ASSESSING OFFICER JUSTIFYING NON SELECTION OF THE ASSESSEES CASE FOR SCRUTINY AND THEREFORE, THIS JUDGMENT IS NOT APPLICA BLE . 5.4 THE NEXT JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS THE JUDGMENT OF HON'BLE CALCUTTA HIGH COURT RENDERED IN THE CASE EASTERN SCALES (PVT.) LTD. (SUPRA). IN THAT CASE , THE ISSUE IN DISPUTE WAS THE RECTIFICATION ORDER PASSED BY THE ASSESSING OFFICER U/S 154 OF THE ACT ACCORDING TO THE DIRE CTION OF THE ADDL. CIT AND UNDER THESE FACTS, IT WAS HELD THAT THE INCOME TAX OFFICER HAD TO ACT JUDICIALLY OR QUASI - JUDICIALLY IN THE ASSESSMENT PROCEEDINGS AND ANY DIRECTION BY ANY HIGHER AUTHORITY AS TO THE MANNER IN WHICH SUCH PROCEEDINGS ARE TO BE DIS POSED OF WOULD BE INTERFERENCE WITH THE JUDICIAL OR QUASI - JUDICIAL FUNCTIONS OF THE INCOME TAX OFFICER. IN THE PRESENT CASE, IT IS NOT THE CASE OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS ACTED IN ACCORDANCE WITH ANY SUCH SPECIFIC DIRECTION OF THE SUPE RIOR OFFICER THAT THE CASE OF THE ASSESSEE MUST BE ELECTED FOR SCRUTINY AND THEREFORE, THIS JUDGMENT IS ALSO NOT APPLICABLE IN THE PRESENT CASE. 5.5 THE NEXT JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDE RED IN THE CASE OF GORDHANDAS DESAI (SUPRA). IN THIS CASE , IT WAS HELD THAT THE ASSESSING OFFICER SHOULD PASS ORDER FOR RECTIFICATION IGNORING THE DECISION OF THE COMMISSIONER AND THE FURTHER LETTERS OF THE CBDT AND THE GOVT. OF INDIA WHICH MUST NOT INFLU ENCE HIS DETERMINATION. THERE IS NO QUARREL ON THIS ASPECT BUT IN THE PRESENT CASE , THERE IS NO SUCH DISPUTE THAT THE DECISION OF THE ASSESSING OFFICER IS ON THE 6 DIRECTION OF ANY OTHER AUTHORITY. THIS JUDGMENT IS ALSO NOT RENDERING ANY HELP TO THE ASSESS EE IN THE PRESENT CASE. 5.6 THE NEXT JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS THE JUDGMENT OF HON'BLE GUJARAT HIGH COURT RENDERED IN THE CASE OF GUJARAT GAS CO. LTD. (SUPRA). IN THIS CASE , IT WAS HELD THAT THE PROCEEDINGS BEFORE THE ASSESSING OF FICER ARE JUDICIAL PROCEEDINGS AND THEREFORE, ALL THE INCIDENTS OF SUCH JUDICIAL PROCEEDINGS HAVE TO BE OBSERVED BEFORE THE RESULT IS ARRIVED AT. IN THAT CASE , THE ASSESSEE ASKED TO INSPECT THE RELEVANT RECORDS AND DOCUMENTS BEFORE LEADING EVIDENCE IN REB UTTAL WHICH WAS DENIED AND IT WAS HELD THAT NO SUCH DIRECTION CAN BE ISSUED BY BOARD U/S 139(1) WHICH SHOULD INTERFERE IN THE JUDICIAL FUNCTION OF THE ASSESSING OFFICER. IN THE PRESENT CASE, THIS IS NOT IN DISPUTE THAT ANY SUCH DIRECTION WAS ISSUED TO ASS ESSING OFFICER FOR SELECTING THE CASE OF THE ASSESSEE FOR SCRUTINY. THE DECISION OF THE ASSESSING OFFICER FOR SELECTING THE CASE IS HIS OWN DECISION ALTHOUGH HE TOOK THE HELP OF COMPUTER IN THIS REGARD. IN OUR CONSIDERED OPINION, THIS JUDGMENT IS ALSO NO T RENDERING ANY HELP TO THE ASSESSEE IN THE PRESENT CASE. 5.7 THE NEXT JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF ORIENT PAPER MILLS LTD. (SUPRA). IN THIS CASE, THIS WAS THE DECISION OF HON'BLE APEX COURT THAT IF THE POWER EXERCISED BY THE COLLECTOR WAS A QUASI JUDICIAL POWER, AS HAS BEEN HELD BY APEX COURT, THAT POWER CANNOT BE CONTROLLE D BY THE DIRECTIONS ISSUED BY THE BOARD. IT WAS ALSO HELD THAT NO AUTHORITY HOWEVER HIGH PLACED CAN C ONTROL THE DECISION OF A JUDICIAL OR A QUASI JUDICIAL AUTHORITY. IN THE PRESENT CASE, THE FACTS ARE DIFFERENT. IN THE PRESENT CASE, THIS IS NOT THE CASE OF THE ASSESSEE THAT ANY SUPERIOR AUTHORITY HAS CONTROLLED THE ACTION OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SELECTED THE CASE ON HIS OWN ALTHOUGH HE TOOK THE HELP OF COMPUTER AND THEREFORE, THIS JUDGMENT IS ALSO NOT RENDERING ANY HELP TO THE ASSESSEE IN THE PRESENT CASE. 7 5.8 THE NEXT JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS THE JUDGME NT OF HON'BLE APEX COURT RENDERED IN THE CASE OF SHEO SHANKER SITARAM (SUPRA). IN THIS CASE, IT WAS THE DECISION OF HON'BLE APEX COURT THAT AN OFFICER OR AUTHORITY UPON WHOM JURISDICTION HAS BEEN CONFERRED TO MAKE AN ORDER JUDICIALLY HAS TO ACT INDEPENDEN TLY. IN THE PRESENT CASE, THIS IS NOT THE CASE OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS NOT ACTED INDEPENDENTLY AND THEREFORE, IN OUR CONSIDERED OPINION, THIS JUDGMENT IS ALSO NOT RENDERING ANY HELP TO THE ASSESSEE IN THE PRESENT CASE. 6. AS PER THE ABOVE DISCUSSION, WE HAVE SEEN THAT NONE OF THE JUDGMENTS IS RENDERING ANY HELP TO THE ASSESSEE. WE HAVE ALSO SEEN THAT THE CASE WAS SELECTED FOR SCRUTINY BY ASSESSING OFFICER ALTHOUGH HE HAD TAKEN HELP OF COMPUTER AND IT CANNOT BE SAID THAT TH E ACTION OF THE ASSESSING OFFICER IS NOT VALID. 6.1 NOW WE EXAMINE THE ISSUE FROM A DIFFERENT ANGLE. THIS HAS TO BE ADMITTED THAT THE ENTIRE JURIS PRUDENCE IN RESPECT OF TAX ADMINISTRATION SUCH AS PRINCIPLE OF NATURAL JUSTICE ETC. ARE WITH THE SOLE OBJECT OF ENSURING THAT THE TAX PAYER IS NOT UNDULY HARASSED BY THE TAX DEPARTMENT HAVING ALMIGHTY POWER OF STATE. IN ORDER TO MAKE TAX ADMINISTRATION AND COLLECTION FRIENDLY TO TAX PAYER, SOME STEPS HAVE BEEN TAKEN BY THE TAX ADMINISTRATION/GOVERNMENT ALTHOUGH MUCH WORK IS STILL TO BE DONE IN THIS REGARD. SOME OF THESE STEPS ARE THAT IT IS MADE A RULE THAT TAX RETURNS CAN BE FILED IN A PAPER LESS MANNER IN ORDER TO IMPROVE VOLUNTARY COMPLIANCE BY THE TAX PAYER AND ALSO TO REDUCE THE BURDEN OF FILING VOLUMINOUS DOCUMENTS ALONG WITH THE TAX RETURN. THIS IS A BIG RELIEF TO THE TAX PAYER BUT THIS HAS TO BE ENSURED THAT THERE ARE SOME DETERRING MEASURES SO THAT NO UNDUE ADVANTAGE IS TAKEN BY ANY TAX PAYER OF THIS LIBERAL POLICY OF THE GOVERNMENT. EVEN THESE DETERR ING MEASURES ARE TO BE SUCH THAT THEY CAUSE MINIMUM HARASSMENT TO THE TAX PAYER. THEREFORE, SCHEME HAD BEEN DEVISED THAT ONLY VERY SMALL PERCENTAGE OF TOTAL TAX RETURNS 8 WILL BE SCRUTINIZED BY THE DEPARTMENT AND GENERALLY IT IS ABOUT 2% TO 3% OF THE TOTAL TAX RETURNS FILED IN A YEAR. WHEN IT IS SEEN THAT THE RETURN IS TO BE FILED BY THE ASSESSEE IN PAPERLESS MANNER AND STILL THERE HAS TO BE SOME DETERRING MEASURE TO PROHIBIT THE TAXPAYER FROM ADOPTING THE HABIT OF TAX EVASION/AVOIDANCE, IT WAS DECIDED THA T THERE SHOULD BE SCRUTINY IN A SMALL NUMBER OF CASES. SINCE THE RETURNS FILED ARE PAPER LESS, SOME SYSTEM HAS TO BE DEVISED FOR SELECTING THE CASE FOR SCRUTINY. WHEN THE RETURN IS FILED WITHOUT ANY PAPER, CERTAIN GUIDELINES HAVE TO BE FORMED FOR SELECTIN G SOME CASES FOR SCRUTINY AS DETERRING MEASURE. THESE GUIDELINES MAY BE SUCH THAT THE PERSON HAVING INCOME ABOVE A PRESCRIBED LIMIT WILL BE SCRUTINIZED IN LARGER PERCENTAGE COMPARED TO SMALL TAX PAYERS. IT MAY BE A POLICY THAT VERY SMALL TAX PAYERS WILL N OT BE SCRUTINIZED AT ALL. IF SUCH A SYSTEM IS DEVISED BY THE DEPARTMENT IN A GENERAL MANNER WITHOUT TARGETING A PARTICULAR ASSESSEE, IT CANNOT BE SAID THAT SUCH SYSTEM OF SELECTING A CASE FOR SCRUTINY IS INTERFERING WITH THE INDEPENDENT DECISION OF THE AS SESSING OFFICER WHO IS TO SELECT THE CASE FOR SCRUTINY. INSPITE OF SUCH GUIDELINES, THE ULTIMATE DECISION IS OF THE ASSESSING OFFICER THAT A PARTICULAR CASE IS FALLING IN SUCH GUIDELINE AND IN THIS PROCESS, IF THE ASSESSING OFFICER IS TAKING HELP OF COMPU TER IN ANALYZING DATA DISCLOSED BY THE TAX PAYER IN THE RETURN OF INCOME THEN IT CANNOT BE SAID THAT THE DECISION FOR SELECTING THE CASE FOR SCRUTINY IS NOT INDEPENDENT DECISION OF THE ASSESSING OFFICER. THIS IS NOT THE CASE OF THE ASSESSEE THAT THERE IS ANY SPECIFIC DIRECTION OF ANY HIGHER AUTHORITY TO SELECT THE CASE OF THIS PARTICULAR ASSESSEE FOR SCRUTINY. THE GUIDELINE MAY BE THIS AS TO WHAT SHOULD BE PERCENTAGE OF THE CASES TO BE SELECTED FOR SCRUTINY IN SEVERAL DIFFERENT TYPE OF TAX PAYERS. THE GUI DELIE MAY BE THAT WHERE SEARCH OR SURVEY HAS TAKEN PLACE, THE NUMBER OF CASES TO BE SELECTED SHOULD BE HIGH IN PERCENTAGE. SIMILARLY, THE GUIDELINE MAY BE THAT IF THE ASSESSEE IS CLAIMING EXEMPTION/DEDUCTION OF CERTAIN AMOUNT THEN ALSO THE PERCENTAGE MAY BE HIGHER COMPARED TO THOSE ASSESSEES WHO ARE NOT CLAIMING ANY EXEMPTION/DEDUCTION. SUCH GUIDELINES FORMED BY 9 THE DEPARTMENT AS A WHOLE IN GENERAL MANNER FOR THE ASSESSEES ALL OVER THE COUNTRY, IT CANNOT BE SAID THAT SUCH GUIDELINE IS INTERFERING WITH THE INDEPENDENT DECISION OF THE ASSESSING OFFICER FOR DECIDING THE CASES TO BE SELECTED FOR SCRUTINY. IF THIS VIEW IS TAKEN THEN THE DEPARTMENTAL ADMINISTRATION WILL BE FORCED TO ADOPT OLD SYSTEM OF SELECTING ALMOST ALL CASES FOR SCRUTINY WHICH WAS CAUSING V ERY UNDUE HARASSMENT TO ALL THE TAX PAYERS AND WASTAGE OF THE ENERGY AND EFFORTS OF THE DEPARTMENT ALSO. IN THE PRESENT SYSTEM, THE THRUST IS ON VOLUNTARY COMPLIANCE OF THE TAX PAYER AND BY ENSURING THAT SOME DETERRING MEASURES ARE TAKEN THAT TOO IN A TAX PAYER FRIENDLY MANNER OF PROMOTING THE ASSESSEE TO FILE RETURNS WITHOUT ATTACHING ANY PAPER AND THEN SELECTING ONLY VERY SMALL NUMBER OF CASES FOR SCRUTINY WITH THE AID OF COMPUTER AND CERTAIN GENERALLY FORMED GUIDELINES. IN OUR CONSIDERED OPINION, IT CAN NOT BE SAID THAT THE DECISION OF THE ASSESSING OFFICER TO SELECT THE CASE FOR SCRUTINY IN THIS SYSTEM IS NOT AN INDEPENDENT DECISION OF THE ASSESSING OFFICER. FROM THIS ANGLE ALSO, WE CAME TO THE SAME CONCLUSION THAT VARIOUS CONTENTIONS RAISED BY THE ASS ESSEE ARE DEVOID OF ANY MERIT. ACCORDINGLY, THESE GROUNDS ARE REJECTED. 7. GROUND NO. 3 IS AS UNDER: 3. BECAUSE THERE WAS NO 'ACCRUAL' OR 'RECEIPT' OF ANY INCOME CHARGEABLE TO TAX, OUT OF PREMIA RECEIVED / RECEIVABLE FROM THE ENTREPRENEURS AT THE TIME OF ALLOTMENT OF INDUSTRIAL SITES AND SHEDS TO THEM AND THE AUTHORITIES BELOW HAVE ERRED IN LAW AND ON FACTS IN MAKING/UPHOLDING AN ADDITION OF RS.10,24,41,424/ - AS HAD BEEN WORKED OUT BY THE ASSESSING OFFICER BY APPLYING A 'MEASURE OF 5%' TO THE AGGREGATE OF SUCH PREMIA. 8. IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT PARA 8 AND 9 OF THE WRITTEN SUBMISSIONS ARE RELEVANT FOR DECIDING THIS ISSUE WHICH ARE REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: 10 8. ADDITION ON ACCOUNT OF LEASING OF INDUS TRIAL SITES/PLOTS, RS.10,24,11 424/ - , (GROUND NO.3): THE ISSUE HAS BEEN DEALT WITH BY THE ASSESSING OFFICER AT PAGE 5 (BOTTOM) AND PAGE 6. THE L D. CIT(A) HAS DECIDED THIS ISSUE AGAINST THE ASSESSEE/APPELLANT VIDE PARAS 3 AND 3.1 OF THE APPELLATE ORDER BY REFERRING TO THE VIEW TAKEN IN EARLIER YEARS IN THE APPELLANT'S OWN CASE. IT IS CANDIDLY ADMITTED THAT IN THE EARLIER YEARS THE MATTER STANDS DECIDED AGAINST THE APPELLANT EVEN FROM THE STAGE OF THE HON'BLE ITAT. AT THE SAME TIME, THE APPELLANT PRAYS FOR ' REVIEW' AND 'RECONSIDERATION' IN VIEW OF THE SUBMISSIONS MADE TO THE EFFECT THAT PREMIA HAD BEEN REALIZED FOR LEASING OUT THE INDUSTRIAL SITES/PLOTS TO THE ENTREPRENEURS FOR A SPECIFIED PERIOD, WHEREAS U P SIDC CONTINUED TO RETAIN ITS 'OWNERSHIP' OVER THE SA ME. THE PREMIA REALIZED IS REFUNDABLE ON THE MATURITY OF THE AGREEMENT. IN CASE THERE IS A PRE MATURE TERMINATION OF THE AGREEMENT, THEN TOO PREMIA IS REFUNDABLE. THUS, IT IS LIKE EARNEST MONEY AND NO PART OF THE SAME CAN BE SUBJECTED TO ASSESSMENT. THE SA ID SUBMISSION APPEARS IN PARAS 3, 4, 5, 6 AND 7 OF THE WRITTEN SUBMISSIONS FILED BEFORE THE L D. CIT(A), COPY APPEARS AT PAGES 135 TO 145 AND THIS ISSUE HAS BEEN DISCUSSED ON PAGES 136 AND 137 OF THE PB, WHICH ARE SPECIFICALLY REFERRED TO AND RELIED UPON. 9. IN VIEW OF THE FACTUAL MATRIX AS CONTAINED IN PARAS 3, 4, 5, 6 & 7 OF THE WRITTEN SUBMISSIONS (PAGES 136 AND 137 OF THE PAPER BOOK, SUPRA) IT IS PRAYED THAT THE MATTER BE RECONSIDERED AND THE PRINCIPLES OF RES - JUDICATA SHOULD NOT BE HELD TO BE APPLICABL E IN VIEW OF THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. BRIJ LAL LOHIA & MAHABIR PRASAD KHEMKA REPORTED IN (1972) 84 ITR 273, WHEREIN THEIR LORDSHIPS HAVE OBSERVED AND HELD AS UNDER: - 'THE FACT THAT IN THE EARLIER PROCEED INGS THE TRIBUNAL TOOK A DIFFERENT VIEW OF THOSE DEEDS IS NOT A CONCLUSIVE CIRCUMSTANCE. THE DECISION OF THE TRIBUNAL REACHED DURING THOSE PROCEEDINGS DOES NOT OPERATE AS RES - JUDICATA. AS SEEN EARLIER THERE WAS A GREAT DEAL MORE EVIDENCE BEFORE THE TRIBUNA L DURING THE PRESENT PROCEEDINGS, RELATING TO THOSE GIFT DEEDS.' 9. LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDER OF LEARNED CIT(A). 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT IT IS ADMITTED BY LEARNED A.R. OF THE ASSESSEE ALSO THAT TH IS ISSUE IS SQUARELY COVERED 11 AGAINST THE ASSESSEE BY VARIOUS TRIBUNAL DECISIONS IN ASSESSEES OWN CASE. IN THIS REGARD, WE FIND THAT NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE LEARNED A.R. OF THE ASSESSEE TO CONVINCE US FOR TAKING A DIFFERENT VIEW IN T HE PRESENT YEAR. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) BECAUSE THE SAME IS IN LINE WITH THE EARLIER TRIBUNAL DECISION. 11. GROUND NOS. 4, 5 & 6 ARE INTER CONNECTED, WHICH READ AS UNDER: 4. BECAUSE THE 'CIT(A)' HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE DISALLOWANCE OF RS.99,60,538/ - REPRESENTING THE CONTRIBUTION MADE TO LIFE INSURANCE CORPORATION OF INDIA UNDER 'GROUP GRATUITY INSURANCE SCHEME' AS HAD BEEN FRAMED BY IT (LIC), ON THE GROUNDS THAT THE SCHEME OF GR OUP GRATUITY SCHEME HAS NOT BEEN APPROVED BY THE COMMISSIONER OF INCOME - TAX. 5. BECAUSE GROUP GRATUITY INSURANCE SCHEME AS FORMULATED BY LIFE INSURANCE CORPORATION OF INDIA WITH GENERAL APPROVAL OF THE GOVERNMENT OF INDIA CONSTITUTED AN APPROVED FUND AND NO FURTHER/SEPARATE APPROVAL BY THE CIT WAS NEEDED, FOR THE PURPOSES OF ADMISSIBILITY OF THE SAME AS DEDUCTION UNDER SECTION 40A(7) OF THE 'ACT. 6. BECAUSE IN ANY CASE ACTUAL PAYMENTS MADE BY LIFE INSURANCE CORPORATION OF INDIA, BY WAY OF GRATUITY TO RETI RING EMPLOYEES OF THE 'APPELLANT' (UNDER THE COVER PROVIDED BY LIC IN GROUP GRATUITY INSURANCE SCHEME) WERE LIABLE TO BE ALLOWED AS DEDUCTION UNDER SECTION 40A(7) READ WITH SECTION 37 OF THE ACT. 12. REGARDING THESE GROUNDS, IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT PARA 10 TO 14 OF THE WRITTEN SUBMISSIONS FILED BY ASSESSEE ARE RELEVANT FOR DECIDING THIS ISSUE AND THEREFORE, THESE PARAS ARE REPRODUCED BELOW: 10. PAYMENTS TO LIFE INSURANCE CORPORATION OF INDIA UNDER GROUP GRATUITY INSURANCE SCHEME, RS.99,60,538/ - (GROUND NOS.4 5 & 6): THE ASSESSING OFFICER HAS DISCUSSED THIS ISSUE ON PAGE 5, FROM WHICH IT WOULD BE SEEN THAT THE DISALLOWANCE HAS BEEN 12 MADE AS PER PROVISIONS CONTAINED IN SECTION 40A(7) OF THE ACT WHICH READS AS UNDER: - '(7) (A) SUBJECT TO THE PROVISIONS OF CLAUSE (B), NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY PROVISION (WHETHER CALLED AS SUCH OR BY ANY OTHER NAME) MADE BY THE ASSESSEE FOR THE PAYMENT OF GRATUITY TO HIS EMPLOYEES ON THEIR RETIREMENT OR ON TERMINATION OF THEIR EMPLOYMENT FOR ANY REASON. (B) NOTHING IN CLAUSE (A) SHALL APPLY IN RELATION TO ANY PROVISION MADE BY THE ASSESSEE FOR THE PURPOSE OF PAYMENT OF A SUM BY WAY OF ANY CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND, OR FOR THE PURPOSE OF PAYMENT OF ANY GRATUITY, THAT HAS BECOME PAYABLE DURING THE PREVIOUS YEAR. EXPLANATION - FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT WHERE ANY PROVISION MADE BY THE ASSESSEE FOR THE PAYMENT OF GRATUITY TO HIS EMPLOYEES ON THEIR RETIREMENT OR TERMINATION OF THEIR EMPLOYMENT FOR ANY REASON HAS BEEN ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE ASSESSEE FOR ANY ASSESSMENT YEAR, ANY SUCH PAID OUT OF SUCH PROVISION BY WAY OF CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND OR BY WAY OF GRATUITY TO ANY EMPLO YEE SHALL NOT BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE SUM IS SO PAID.' 11. IT IS VERY SIGNIFICANT TO MENTION HERE THAT IT IS AN ACTUAL PAYMENT PHYSICALLY MADE TO LIQ AND IT IS NOT THE PROVISION M ADE IN THE BOOKS OF ACCOUNT WHICH ALONE COULD BE TREATED TO BE HIT BY THE PROVISION OF SECTION 40A(7). THE SAID SUB - SECTION AS HAS BEEN REPRODUCED IN PARA 9 ABOVE IS PREFERABLE TO A PROVISION AND NOT TO AN EXPENDITURE ACTUALLY MADE. THEREFORE, IT IS PLEADE D THAT THE PREMIUM PAID TO LIC FOR THE PURPOSES OF MAKING PAYMENT OF GRATUITY IS NOT HIT BY SECTION 40A(7) , BUT ADMISSIBILITY OF THE SAME AS DEDUCTION IS GOVERNED BY THE OMNIBUS SECTION 37(1) OF THE ACT WHICH READS AS UNDER : - GENERAL. 37.(1) ANY EXPENDIT URE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE 13 NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHA LL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. [EXPLANATION. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE.] 12. T HE C1T(A) HAS DECIDED THIS ISSUE AGAINST THE ASSESSEE/APPEL LANT VIDE PARAS 4 AND 4.1 OF THE APPELLATE ORDER BY RELYING ON THE ORDERS PASSED BY THE HON'BLE ITAT IN THE APPELLANT'S OWN CASE FOR THE EARLIER ASSESSMENT YEARS'. IT IS ADMITTED HAT IN PAST THE ISSUE HAS BEEN DECIDED AGAINST THE APPELLANT. BE IT SO, THE APPELLANT BEGS TO PUT FORTH ANOTHER VIEW POINT AND AN ALTERNATE SUBMISSION WHICH IS AS FOLLOWS: - A) 'GROUP GRATUITY SCHEME' IS A 'PRODUCT' OF LIFE INSURANCE CORPORATION OF INDIA (LIC) WHICH HAD BEEN CONSTITUTED BY AN ACT OF PARLIAMENT. THIS MEANS THAT IT CARRIES THE APPROVAL OF THE CENTRAL GOVERNMENT, AS SUCH. THEREFORE, REQUIREMENT TO OBTAIN APPROVAL OF THE CIT SHOULD BE READ DOWN AND THE DOCTRINE OF 'READING DOWN' IS THE WELL LAID PRINCIPLE OF INTERPRETATION OF LAW. KIND ATTENTION IS INVITED TO T HE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA & ANR. VS. A. SANYASI RAO AND OTHERS REPORTED IN (1996) 219 ITR 330 RENDERED IN THE CONTEXT OF PROVISIONS OF SECTION 44AC. B) IN ANY CASE THE PAYMENT IN QUESTION SHOULD BE TREATED AS EXPENDITURE SIMPLICITOR (OTHER THAN THE EXPENSES INCURRED ON PAYMENT OF GRATUITY) INCURRED BY THE APPELLANT DURING THE COURSE OF CARRYING ON OF BUSINESS, IN ITS CAPACITY AS BUSINESSMAN. SUCH PAYMENTS, EVEN IF MADE VOLUNTARILY, DESERVE TO BE ALLOWED AS DEDU CTION AS PER THE PRINCIPLES LAID DOWN BY THE HON'BLE APEX COURT IN THE CASE OF SASSOON J. DAVID AND CO. PVT. LTD. VS. CIT REPORTED IN (1979) 118 ITR 261, WHEREIN AT PAGE 273 THEIR LORDSHIPS HAVE OBSERVED AND HELD AS UNDER: - 14 'IN ORDER TO CLAIM DEDUCTION UN DER S. NO (2)(XV) OF THE ACT, AN ASSESSEE HAS TO SHOE THAT THE EXPENDITURE IN QUESTION, (I) WAS NOT AN ALLOWANCE OF THE NATURE DESCRIBED IN ANY OF THE ELS. (I) TO (XIV) OF S. 10(2), (II) WAS NOT IN THE NATURE OF A CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE AND (III) HAD BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF HIS BUSINESS, PROFESSION OR VOCATION. EVEN ASSUMING THAT THE MOTIVE BEHIND THE PAYMENT OF RETRENCHMENT COMPENSATION WAS THAT THE TERMS OF THE AGREEMENT OF THE S ALE OF SHARES SHOULD BE SATISFIED, AS LONG AS THE AMOUNT HAD BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE, THERE APPEARS TO BE NO GOOD REASON FOR DENYING THE BENEFIT OF S. 10(2) (XV) OF THE ACT TO THE COM PANY IF THERE IS NO OTHER IMPEDIMENT TO DO SO.' 13. IN SHORT THE APPELLANT'S CONTENTION IS THAT, EVEN IF IT IS HELD THAT GROUP GRATUITY SCHEME LAUNCHED BY LIC IS NOT FORMALLY APPROVED IN THE INSTANT CASE BY THE JURISDICTIONAL COMMISSIONER OF INCOME TAX, A LTHOUGH NOT ADMITTED BY THE APPELLANT IN VIEW OF THE SUBMISSIONS MADE IN PARA 11 (A) HEREINFORE, IT IS PLEADED THAT SUM IN QUESTION SHOULD BE ALLOWED AS A LEGITIMATE OUTGOING INCIDENTAL TO CARRYING ON OF BUSINESS AND THE SAME IS ADMISSIBLE AS DEDUCTION IN VIEW OF THE PRINCIPLES LAID DOWN BY HON'BLE SUPREME COURT IN THE CASE OF SASSOON J. DAVID AND CO. PVT. LTD. (SUPRA). 14. WHOLLY WITHOUT PREJUDICE, TO THE SUBMISSIONS SO MADE, IT IS PLEADED THAT ACTUAL PAYMENT OF GRATUITY MADE TO THE RETIRING EMPLOYEES SHO ULD BE ALLOWED AS DEDUCTION. THE MODUS OPERANDI FOLLOWED BY THE LIC IN THE MATTER IS THAT ON THE BASIS OF DATA SUPPLIED BY UPSIDC, IT (LIC) HAS THE INFORMATION ABOUT THE RETIRING EMPLOYEES, YEAR AFTER YEAR. ON THE BASIS OF SUCH DATA, IT MAKES AVAILABLE TO UPSIDC THE REQUISITE AMOUNT OF FUNDS, OUT OF WHICH DISBURSEMENT OF GRATUITY IS MADE BY UPSIDC. THE DISBURSEMENT SO MADE IS NOT CHARGED TO THE PROFIT AND LOSS ACCOUNT. THEREFORE, SUCH A DISBURSEMENT/PAYMENT SHOULD BE ALLOWED AS DEDUCTION. 13. LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 15 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE EARLIER TRIBUNAL DECISION AS HAS BEEN ADMITTED BY LEARNED A.R. OF THE ASSESSEE IN PARA 12 OF THE WRITTEN SUBMISSIONS. LEARNED A.R. OF THE AS SESSEE IS IN FACT MAKING A CASE FOR REVIEW OR RECONSIDERATION OF THE EARLIER TRIBUNAL DECISION BUT WE FIND THAT NO MATERIAL HAS BEEN BROUGHT ON RECORD TO CONVINCE US FOR TAKING A CONTRARY VIEW IN THE PRESENT YEAR. HENCE, WE DECLINE TO INTERFERE IN THE ORD ER OF CIT(A) BECAUSE HIS DECISION IS IN LINE WITH THE EARLIER TRIBUNAL DECISION. THESE GROUNDS ARE REJECTED. 15. GROUND NOS. 7 TO 10 ARE INTER CONNECTED, WHICH READ AS UNDER: 7. BECAUSE 'CIT(A)' HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT RECEIPTS CLASSIFIED UNDER THE HEAD 'INTEREST' BY THE THREE UNITS COVERED BY THE PROVISIONS OF SECTION 80IA OF THE ACT, AS PER PARTICULARS GIVEN HEREIN BELOW: - SL. NO. NAME OF THE PROJECT RECEIPTS CLASSIFIED UNDER THE HEAD INTEREST (RS.) (I) TRONICA CITY INDUSTRIAL MODEL TOWN 11,78,51,405 (II) EXPORT PROMOTION INDUSTRIAL PARK, GREATER NOIDA 4,24,92,416 (III) AGRA EXPORT PROMOTION INDUSTRIAL PARK 39,75,286 COULD NOT BE TREATED AS 'INCOME DERIVED FROM ELIGIBLE BUSINESS' AND IN DIRECTING THE ASSESSING OFFICER TO EXCLUDE THE SAME FROM COMPUTATION OF 'ELIGIBLE PROFIT.' 8. BECAUSE THE RECEIPTS CLASSIFIED UNDER THE HEAD INTEREST REPRESENTED THE INCOME EARNED BY AND DERIVED FROM THE ACTIVITIES CARRIED ON BY THE 'APPELLANT' THROUGH THE SAID ELIGIBLE UNITS AN D THE SAME BEING FORMING INTEGRAL PART OF THE INCOME FROM BUSINESS DERIVED FROM SUCH UNITS, QUALIFY FULLY FOR DEDUCTION UNDER SECTION 80IA. 9. BECAUSE THE ''APPELLANT'S' CLAIM FOR RELIEF UNDER SECTION 80IA, CANNOT BE HELD TO BE DEFEATED EVEN BY THE DECISI ON OF 16 HON'BLE APEX COURT IN THE CASE OF CIT VS. RAJA BAHADUR KAMAKHAYA NARAYAN SINGH REPORTED IN 16 ITR 325 AS ALSO BY VARIOUS OTHER DECISIONS OF THE HON'BLE APEX COURT, AS HAVE BEEN REFERRED TO AND RELIED UPON BY THE 'CIT(A)' IN HIS APPELLATE ORDER FOR TH E ASSESSMENT YEARS 2005 - 06 AND 2006 - 07 (AS REFERRED TO IN THE APPELLATE ORDER WHICH IS SUBJECT MATTER OF PRESENT APPEAL) AS THE SAME HAD BEEN DELIVERED IN AN ALTOGETHER DIFFERENT CONTEXT AND ON THE FACTS DISSIMILAR TO THAT OF THE 'APPELLANT'. 10. BECAUSE THE DIRECTION TO RECOMPUTE THE 'ELIGIBLE PROFIT', AFTER REDUCING THE SAME BY RECEIPTS 'AS REFERRED TO IN GROUND NO. 7 HEREINFORE' AMOUNTED TO ENHANCEMENT OF INCOME AND NO NOTICE FOR ENHANCEMENT HAVING BEEN GIVEN BY THE 'CIT(A)', THE SAME IS WHOLLY ERRONEOU S. 16. IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT ON THIS ISSUE , PARA NO. 15 TO 37 OF THE WRITTEN SUBMISSIONS FILED BY ASSESSEE ARE RELEVANT FOR DECIDING THIS ISSUE AND THEREFORE, THESE PARAS ARE REPRODUCED BELOW: 15. DEDUCTION UNDER SECTION 80IA, RS.21,23,81,78 5 / - (GROUNDS NO.7, 8, 9 AND 10): THE L D. ASSESSING OFFICER HAS DISCUSSED THIS ISSUE ON PAGES 2 (LATER PART), 3, 4, AND 5 (EARLIER PART). IT IS STATED THAT THE CLAIM OF RS.21,23,81,785/ - MADE BY THE APPELLANT (WHICH IS AN APPROVED FINANC IAL CORPORATION ALSO) UNDER SECTION 80IA, REPRESENTED THE PROFITS AND GAINS DERIVED FROM THE 'UNDERTAKING'/ 'ENTERPRISES' NAMELY TRONICA CITY INDUSTRIAL MODEL TOWN, LONI, EXPORT PROMOTION INDUSTRIAL PARK, AGRA AND GREATER NOIDA EXPORT PROMOTION INDL. PARK, KASNA WITH REFERENCE TO AUDITED STATEMENT OF ACCOUNTS AS APPEARING ON PAGES 59 TO 116 OF THE PAPER BOOK. THE STATEMENT SHOWING COMPUTATION OF RELIEF UNDER SECTION 80IA AT RS.21,23,81,785/ - IS REPRODUCED HEREUNDER: - PARTICULARS TRONICA CITY INDUSTRIAL MODEL TOWN LONI GREATER NOIDA EXPORT PROMOTION INDUSTRIAL PARK EXPORT PROMOTION INDUSTRIAL PARK, AGRA UPSIDC OTHER SCHEMES TOTAL NET PROFIT AS PER PROFIT & LOSS ACCOUNT ADD: (I)DEPRECIATION DEBITED IN PROFIT & LOSS ACCOUNT (II)DIMINUTION IN THE VALU E OF SHARES III)LOSS ON SALE OF FIXED ASSET PRODUCT: I) DIVIDENT INCOME CREDITED 165458336 - - - 44526637 - - - 2396812 - - - 577963181 31620444 1261000 10923 790344966 31620444 1261000 10923 165458336 - 44526637 - 2396812 - 610855548 332369 823237333 332369 17 IN PROFIT & LOSS ACCOUNT II)ARREARS OF SALARY PAYABLE AS PER RECOMMENDATION OF RRC III)DEPRECIATION ADMISSIBLE AS PER PROFIT & LOSS ACCOUNT AS PER CHART ATTACHED (ANNEXURE3CD) IV)APPRECIATION IN THE VALUE OF SHARES V)PROFIT ON SALE OF FIXED ASSETS VI)DEDUCTION ADMISSIBLE U/S 36(I)(VIII) OF THE I.T. ACT GROSS INCOME LESS: DEDUCTION U/S 80IA (RESTRICTED TO THE EXTENT OF INCOME) TO TAL INCOME - - - - - - - - - - - - 134182 37846370 260000 22121 134182 37846370 260000 22121 165458336 44526637 2396812 572260506 313856916 784642291 313856916 165458336 44526637 2396812 258403590 470785375 212381785 258403590 165458336 44526637 2396812 - 16. THE DEDUCTION SO CLAIMED BY THE APPELLANT AS IS ATTRIBUTABLE TO THE PROJECTS, AS HAD BEEN APPROVED BY THE PRESCRIBED AUTHORITY, RECEIPTS OF WHICH ARE AS UNDER: - S. NO HEAD OF INCOME TRONICA CITY INDL. MODEL TOWN, LONI GHAZIABAD GREATER NOIDA EXPORT PROMOTION INDL. PARK, KASNA EXPORT PROMOTION INDL. PARK, AGRA (A) INTEREST INCOME INTEREST ON PREMIUM 117659534 39729602 3682613 INTEREST ON MAINTENANCE CHARGE 185256 - - INT. ON ADVANCE TO EMPLOYEES 5565 6711 - CORP. HOUSE RENT RECOVERY 1050 - - LEASE RENT - - 292673 INTEREST ON DEPOSITS - 492769 - INT. ON SERVICE CHARGES - 2552844 - INT. RECEIVED ON RENT - 35754872 - INT. RECEIVED ON LOAN - 2043 - INT. RECEIVED ON OTHERS - - - TOTAL (A) 117851405 42492416 3975286 (B) OTHER INCOME PROCESSING FEES 17058319 415306 146527 MISC. RECEIPT 3324148 - 5800 INT. MONEY & PREMIUM FORFEITURE 1000 - - USE & OCCUPATION CHARGES 49470858 898973 - RENT RECEIVED 108302 2520 - TIME EXTENSION FEE 4855168 - - INTEREST ON FDR 1536656 - - SUB LETTING CHARGES 65450 - - INTT. ON SEWERAGE CHARGES 7317 - - SALES OF APPLICATION FORMS/TEF ETC - 5316491 - RENT RECEIVED ON FLATTERED FACTORY - 2348983 - TOTAL (B) 76427218 8982273 152327 TOTAL (A) + (B) 194278623 15474689 4127613 17. THE ASSESSING OFFICER TOOK A VIEW ON PAGE 3 OF THE ASSESSMENT ORDER THAT THE OTHER INCOME OTHER THAN INTEREST INCOME, DID NOT QUALIFY FOR EXEMPTION UNDER SECTION 80IA AND AS PER PARTICULARS GIVEN THERE (PAGE 3 OF THE ASSESSMENT ORDER) HE DISALLOWED SUMS AGGREGATING RS.8,54,09,49 1 / - , RESTRICTED THE CLAIM TO RS.12,69,72,29 4/ . LATER ON AT PAGE 5 HE HELD THAT EVEN THE SAID SUM OF RS.12,69,72,29 4/ - WAS NOT ADMISSIBLE AS THE 18 AUDIT REPORT IN PRESCRIBED FORM HAD NOT BEEN FILED ALONG WITH THE RETURN. THUS, THE ENTIRE CLAIM OF RS.21,23,81,785/ - UNDER SECTION 80IA HAD BEEN DISALLOWED AT THE ASSESSMENT STAGE. 18. THE ASSESSEE/ APPELLANT FELT AGGRIEVED BY SUCH AN 'EXCLUSION' (FROM THE COMPUTATION OF ELIGIBLE PROFIT) AND TOOK THE MA TTER IN 1 ST APPEAL BEFORE THE ID. CIT(A). THE ID. CIT(A) AGREED WITH THE CONTENTION PUT FORTH BY THE APPELLANT THAT MERE LATE FILING OF AUDIT REPORT CANNOT BE A GROUND FOR DISALLOWANCE OF DEDUCTION UNDER SECTION 80 IA OF THE ACT AND OBSERVATION PART OF THE APPELLATE ORDER IS REPRODUCED HEREUNDER : '6.2 I AGREE WITH THE CONTENTION OF THE LD. A.R. THAT LATE FILING OF THE AUDIT REPORT IN FORM NO. 10CCB COULD NOT BE A REASON TO DENY THE BENEFITS U/S 801A OF THE ACT. REFERENCE IS MADE TO THE DECISIONS OF VARIOUS HON'BLE HIGH COURT THIS REGARD: 1. 209 ITR 63 (BOMBAY) 2. 292ITR147(MP) 3. 219 ITR 721 (GUJ) 4. 262 ITR 10 (CAT) 5. 317 ITR 207 (KAR)' 19. AS REGARDS DISALLOWANCE OF DEDUCTION UNDER SECTION 80IA AGGREGATING TO RS.8,54,09,491/ - REPRESENTED BY THE AGGREGATE OF 'OTHER INCOME', L D. CIT(A) FOLLOWING HIS ORDER PASSED FOR EARLIER ASSESSMENT YEARS ALLOWED THE GROUND OF THE APPELLANT HOLDING THAT THE' SAID 'RECEIPTS' HAVE GOT DIRECT NEXUS TO THE PROFITS AND GAINS OF 'ELIGIBLE BUSINESS' AND THEREFORE QUALIFY FOR BEING INCLUDED IN THE QUANTUM OF ELIGIBLE PROFIT. THE L D. CIT(A) HAS ALSO DIRECTED TO CONSIDER THE ADDITION TOWARDS PREMIA INCOME (5% OF THE TO TAL COLLECTION MADE DURING THE YEAR AS REFERRED IN PARA 8 HEREINFORE) UPHELD BY HIM AS A PART OF 'ELIGIBLE PROFIT' FOR THE PURPOSES OF DEDUCTION UNDER SECTION 80IA OF THE ACT, RELEVANT OBSERVATION OF THE APPELLATE ORDER IS AS UNDER; '6.2.1. ......... IN THOSE ORDERS, THE LD. CIT(A) HAD, HOWEVER, ALLOWED CERTAIN ITEMS OF INCOME (WHICH HAD NOT BEEN CONSIDERED BY THE AO) TO BE CONSIDERED AS INCOME 'DERIVED' FROM THE ELIGIBLE BUSINESS. AS THE NATURE OF THE INCOME REMAINS THE SAME IN THIS YEAR TOO, THE AO IS D IRECTED TO FOLLOW MY DIRECTIONS/FINDINGS GIVEN IN MY APPELLATE ORDERS FOR A. Y. 2005 - 06 & 2006 - 07 ON THIS ISSUE. 19 BEFORE PARTING WITH THE ISSUE, I HEREBY DIRECT THE A.O. T O CONSIDER THE 5% PREMIUM (CORRESPONDING TO THESE THREE INDUSTRIAL PARKS) WHICH WAS AD DED BY THE AO TO THE INCOME OF THE ASSESSEE AND WHICH HAS BEEN CONFIRMED BY ME AT GROUND NO. 1 & 2 OF THIS ORDER AS INCOME DERIVED FROM THE ELIGIBLE BUSINESS AND TO CONSIDER THE SAME FOR DEDUCTION U/S 80IA OF THE ACT.' THUS, THE DISALLOWANCE OF RS.8,54,09 ,491 / - AS HAS BEEN REFERRED TO IN PARA 17 HEREINFORE, WAS RESTORED BY THE ID. CIT(A), TO BE ENHANCED FURTHER BY THE PROFIT CALCULATED @ 5% OF THE PREMIA AS REFERRED TO IN PARA 8 HEREINFORE. 20. BUT BEFORE ALLOWING THE AFORESAID 'RELIEFS', THE CIT(A) WENT FURTHER AT HIS OWN AND TOOK A VIEW THAT INTEREST RECEIVED FROM THE ALLOTTEES (BREAK UP OF WHICH HAS BEEN DISCUSSED IN PARA 16 ABOVE) COULD NOT BE TREATED AS 'PROFITS AND GAINS' DERIVED BY AN 'UNDERTAKING'/ 'ENTERPRISE' AS STIPULATED IN SECTION 80IA. THE DISCUSSION APPEARS IN PARAS 6.2.1. OF THE APPELLATE ORDER READING AS UNDER : '6.2.1 HOWEVER, THAT IS NOT THE END OF THIS MAT TER, IN RESPECT OF DEDUCTION U/S 80IA. ON PERUSAL OF THE DETAILS OF INCOME EARNED BY THE ELIGIBLE UNDERTAKING OF THE ASSESSEE COMPANY, NAMELY TRONIC CITY INDUSTRIAL MODEL TOWN, EXPORT PROMOTION GREATER NOIDA EXPORT PROMOTION INDUSTRIAL PARK AND AGRA EXPORT PROMOTION INDUSTRIAL PARK, IT WAS SEEN THAT THEIR MAIN INCOME WAS ON ACCOUNT OF INTEREST EARNED RS. 1 1,78,51,405 / - BY TRONIC, RS.4,24,92,416/ - BY GREATER NOIDA AND RS.39,75,286/ - BY AGRA. THIS ISSUE HAS BEEN DEALT WITH AT GREAT LENGTH IN THE ASSESSEE'S OWN CASE IN THE APPELLATE PROCEEDINGS FOR EARLIER YEARS WHEREIN WHILE PASSING AN ENHANCEMENT ORDER, IT WAS HELD BY THE LD. CIT(A) THAT SUCH INTEREST INCOME WAS NOT INCOME 'DERIVED FROM' THE ELIGIBLE BUSINESS OF DEVELOPING AND OPERATING OR MAINTAINING AND OPER ATING A NOTIFIED INDUSTRIAL PARK. IN THOSE ORDERS, THE LD. CIT(A) HAD, HOWEVER, ALLOWED CERTAIN ITEMS OF INCOME (WHICH HAD NOT BEEN CONSIDERED BY THE AO) TO BE CONSIDERED AS INCOME 'DERIVED' FROM THE ELIGIBLE BUSINESS. AS THE NATURE OF THE INCOME REMAINS T HE SAME IN THIS YEAR TOO, THE AO IS DIRECTED TO FOLLOW MY DIRECTIONS/FINDINGS GIVEN IN MY APPELLATE ORDERS FOR A.Y. 2005 - 06 & 2006 - 07 ON THIS ISSUE. BEFORE PARTING WITH THE ISSUE, I HEREBY DIRECT 20 THE A.O. TO CONSIDER THE 5% PREMIUM (CORRESPONDING TO THESE THREE INDUSTRIAL PARKS) WHICH WAS ADDED BY THE AO TO THE INCOME OF THE ASSESSEE AND WHICH HAS BEEN CONFIRMED BY ME AT GROUND NO.L & 2 OF THIS ORDER AS INCOME DERIVED FROM THE ELIGIBLE BUSINESS AND TO CONSIDER THE SAME FOR DEDUCTION U/S 80IA OF THE ACT' 2. 1 IT IS STATED THAT TRUE EFFECT OF THE DIRECTIONS CONTAINED IN PARA 6.2.1 OF THE APPELLATE ORDER (WHICH IS SUBJECT MATTER OF PRESENT APPEAL) AS HAS BEEN REPRODUCED IN PRECEDING PARAGRAPH 20 IS THAT THE CIT(A) HAS MADE AN ENHANCEMENT. TO ELABORATE, IT IS SU BMITTED THAT AS FAR AS COMPONENT OF INTEREST FORMING PART OF THE 'PROFITS AND GAINS' DERIVED FROM THE 'UNDERTAKING'/ 'ENTERPRISE' AS PER DETAILS GIVEN IN PARA 16 ABOVE, THE ASSESSING OFFICER HELD THE SAME TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE ACT AND THERE WAS NO DISPUTE IN THE APPEAL SO FAR AS APPELLANT'S ELIGIBILITY FOR DEDUCTION ON THAT SCORE WAS CONCERNED. THE CIT(A) HAS HELD THE SAME AS 'INELIGIBLE' FOR DEDUCTION UNDER SECTION 80IA, WHICH AMOUNTS TO ENHANCEMENT OF INCOME. FOR THE REASO N THAT SUCH AN ENHANCEMENT HAS BEEN MADE WITHOUT ISSUING ANY SHOW CAUSE NOTICE AND/OR GIVING ANY OPPORTUNITY OF BEING HEARD ON THIS ISSUE, IN ANY OTHER MANNER, THE SAME DESERVES TO BE KNOCKED OFF AND THE APPELLANT'S CLAIM FOR DEDUCTION ON INTEREST INCOME D ESERVES TO BE RESTORED. 22. WITHOUT CAUSING IN ANY MANNER ANY PREJUDICE TO THE SUBMISSIONS MADE IN THE FOREGOING PARAGRAPHS (CHALLENGING THE ENHANCEMENT MADE BY THE ID. FIRST APPELLATE AUTHORITY) IT IS SUBMITTED THAT THE VIEW TAKEN BY THE L D. CIT(A) IS WH OLLY INCONSISTENT WITH THE FACTS OF THE INSTANT CASE AND LAW APPLICABLE THEREOF AS HAVE BEEN DISCUSSED IN THE WRITTEN SUBMISSION DATED 26.03.2012 MADE BEFORE THE L D. CIT(A) DURING THE COURSE OF APPELLATE PROCEEDINGS. KIND ATTENTION OF THE HON'BLE BENCH IS SPECIFICALLY INVITED TO THE INFORMATION/ SUBMISSION AVAILABLE ON PAGE 209 TO 223. IT IS EVIDENT FROM THE SAID INFORMATION/SUBMISSION THAT AT THE TIME OF ALLOTMENT AND SUBSEQUENT EXECUTION OF LEASE DEED (IN PURSUANCE OF SUCH LETTER OF ALLOTMENT) THE PREMIUM (AS PAYABLE BY THE ALLOTTEES TO UPSIDC) IS DETERMINED AS PER PRACTICE PREVALENT AT THE RELEVANT TIME. WHEREVER THE ENTREPRENEUR IS NOT IN A POSITION TO PAY THE ENTIRE PREMIUM, THE UNPAID AMOUNT OF THE PREMIUM (WHICH CANNOT EXCEED 75% OF THE TOTAL PREMIUM DUE) IS ALLOWED TO BE PAID IN TEN HALF YEARLY INSTALLMENTS, STARTING FROM A PERIOD AFTER SIX MONTHS OF EXECUTION OF LEASE DEED, FALLING IN JUNE OR 21 DECEMBER IN EACH YEAR. THE RELEVANT CLAUSES OF THE ALLOTMENT LETTER ARE REPRODUCED HEREUNDER: - '4. YOU SHALL DEPOSIT AT THIS OFFICE AN AMOUNT OF RS.66,875.00 TOWARDS RESERVATION MONEY (AFTER ADJUSTING REGISTRATION FEE OF RS.25,000) WHICH INCLUDES RS.2,000 TOWARDS EARNEST MONEY IN RESPECT OF THE ABOVE PLOT LATEST BY 11/11/2002. THIS AMOUNT (TOGETHER WITH REGISTRATION FEE/EARNEST MONEY) IS APPROXIMATELY EQUAL TO 25.00 PERCENT OF THE TOTAL PREMIUM OF THE PLOT AT THE PROVISIONAL RATE OF RS.700.00 PER SQ. MTR. AND LOCATION CHARGES @ RS.0.00 PER SQ. MTR. FOR FIRST FIVE ACRES AND IS SUBJECT TO ADJUSTMENT AC CORDING TO ACTUAL MEASUREMENT OF THE PLOT. IF THE ABOVE AMOUNT FALLS SHORT OF THE AMOUNT EQUAL TO 25.00 PERCENTAGE OF THE TOTAL PREMIUM ACCORDING TO ACTUAL MEASUREMENT, THE BALANCE WILL BE DEPOSITED BY YOU WITHIN SEVEN DAYS OF THE RECEIPT OF DEMAND FROM US . IF THE PAYMENTS ARE NOT MADE AS STIPULATED ABOVE THIS ALLOTMENT WILL STAND AUTOMATICALLY CANCELLED/AND THE WHOLE AMOUNT OF EARNEST MONEY DEPOSITED BY YOU WILL STAND FORFEITED TO THIS CORPORATION, EVEN IF THE AREA OF THE PLOT EITHER EXCEEDS OR IS LESS TH AN THE AREA APPLIED FOR TO THE EXTENT OF 20% OR LESS OF THE AREA APPLIED FOR. HOWEVER, IF THE AREA OF THE LAND ALLOTTED EITHER EXCEEDS THE AREA APPLIED FOR OR FALLS SHORT OF THE AREA APPLIED FOR BY AN AREA MORE THAN 20% OF IT, THE EARNEST MONEY WILL NOT BE FORFEITED IF THIS ALLOTMENT IS NOT ACCEPTED, PROVIDED AN INTIMATION IS SENT TO US IN THIS RESPECT BY THE DATE STIPULATED ABOVE. 5(A). THE REMAINING 75% OF THE PROVISIONAL PREMIUM SHALL HAVE TO BE PAID BY YOU IN 10 EQUAL HALF YEARLY INSTALLMENTS EACH OF W HICH WILL BE DUE FOR PAYMENT ON 1 ST DAY OF JANUARY AND 1 ST DAY OF JULY EACH YEAR. THE FIRST INSTALLMENT WILL FALL DUE FOR PAYMENT ON 01/01/2003. THE SECOND AND SUBSEQUENT INSTALLMENTS OF PREMIUM WILL FALL DUE ON 1 ST DAY OF JANUARY AND 1 ST DAY OF JULY EACH YEAR. AN INTEREST @ 15% PER ANNUM SHALL BE CHARGED ON THE OUTSTANDING (BALANCE) PREMIUM WITH EFFECT FROM THE DATE OF ALLOTMENT AND WILL BE PAYABLE ALONG WITH INSTALLMENT OF PREMIUM AS STIPULATED IN CLAUSE 3 ABOVE SUBJECT TO A REBATE OF 2.00% PER ANNUM ON PAYMENT ON OR BEFORE THE 22 PRESCRIBED DATE AND IF THERE ARE NO ARREARS OR DUES. THE AMOUNT OF THE BALANCE PREMIUM AND THE INTEREST DUE ON IT FROM TIME TO TIME SHALL REMAIN FIRST CHARGE ON THE LAND AND THE BUILDING AND MACHINERY ERECTED THEREON TILL IT IS (THEY ARE) PAID IN FULL'. (P.B. 211& 212) 23. FURTHER PARA 9 & 10 OF THE SAID SUBMISSION IS ALSO RELEVANT, THE SAME READS AS UNDER: - '9. AS PER CLAUSE 5 AS REPRODUCED ABOVE, THE INSTALLMENT PLAN FORMING PART OF THE LETTER OF ALLOTMENT IS ALSO REPRODUCED HEREU NDER : - INSTALLMENT NO. DUE DATE OF INSTALLMENT INTEREST DUE (RS.) PREMIUM DUE (RS.) TOTAL AMOUNT (RS.) 1. 01.07.2003 22774.93 27562.50 50337.43 2. 01.01.2004 16256.59 27562.50 43819.09 3. 01.07.2004 14254.18 27562.50 41816.68 4. 01.01.2005 12609.47 27562.50 40171.97 5. 01.07.2005 10661.02 27562.50 38223.52 6. 01.01.2006 9031.44 27562.50 36593.94 7. 01.07.2006 7107.35 27562.50 34869.85 8. 01.01.2007 5418.86 27562.50 32981.36 9. 01.07.2007 3553.67 27562.50 31116.17 10. 01.01.2008 1806.29 27562.50 29368.79 (P.B. 212) 10. THE LEASE DEED EXECUTED IN PURSUANCE OF THE SAID 'LETTER OF ALLOTMENT' SPECIFICALLY CONTAINS A NARRATION TO THE EFFECT THAT THE PREMIUM (AS HAS BEEN DETERMINED AS PER THE LETTER OF ALLOTMENT) HAS BEEN ALLOWED TO BE PAID IN INSTALLMENTS, WITH A STIPULATION TO CARRY INTEREST AND ALSO OF 23 REBATE FOR TIMELY PAYMENT OF SUCH INSTALLMENTS. CLAUSE (1) OF SUCH LEASE AGREEMENT IS BEING REPRODUCED: - '1. IN CONSIDERATION OF THE PAYMENT BY THE LESSEE OF THE PROVISIONAL PREMIUM OFRS.5,85,000/ - (RS. FIVE LACS EIGHTY FIVE THOUSAND ONLY) THE RECEIPT WHEREOF THE LESSOR HEREBY ACKNOWLEDGES AND OF THE OUTSTANDING AMOUNT OF PROVISIONAL PREMIUM OF RS. - TO BE PAID IN TEN HALF YEARLY INST ALLMENTS AS FOLLOWS ALONG WITH INTEREST @ - % PER ANNUM ON THE TOTAL OUTSTANDING PREMIUM. 1. RS. ON THE 1ST DAY OF JULY ----- 2. RS. ON THE 1ST DAY OF JANUARY ----- 3. RS. ----- ON THE 1ST DAY OF JULY 4. RS. ON THE 1ST DAY OF JANUARY ----- 5. RS. - ON THE 1ST DAY OF JULY ----- 6. RS. ON THE 1ST DAY OF JANUARY ----- 7. RS. ----- ON THE 1ST DAY OF JULY 8. RS. ON THE 1ST DAY OF JANUARY ----- 9. RS. ON THE 1ST DAY OF JULY ----- 10.RS. ON THE 1ST DAY OF JANUARY ----- PROVIDED THAT IF THE LESSEE PAYS THE INSTALLMENTS AND THE INTEREST ON THE DUE DATE AND THERE ARE NO OVER DUES, A REBATE WILL BE ADMISSIBLE @ 2% PER ANNUM IN THE INTEREST. NOTE: (1) THE INTEREST SHALL BE PAYABLE HALF - YEARLY ON THE 1ST DAY OF JANUARY AND 1ST DAY OF JULY EACH YEAR, THE FIRST OF SUCH PAYMENTS TO BE MADE ON THE - DAY OF 20 . (2)LIABILITY FOR PAYMENT OF THE PREMIUM IN INSTALLMENTS, INCLUDING THE INTEREST REFERRED TO ABOVE, SHALL BE DEEMED TO HAVE ACCRUED FROM THE DATE OF THE RESERVATION/ALLOTMENT LETTER NU MBERING 8459 - 50/SIDC/LA - TC/ALLOTPLOTNO.E - 85/A - 5 & 6 DATED 29.01.2002. (3)THE PAYMENTS MADE BY THE LESSEE WILL BE FIRST ADJUSTED TOWARDS THE INTEREST DUE, IF ANY, AND THEREAFTER TOWARDS THE PREMIUM DUE, IF ANY AND THE BALANCE, IF ANY, SHALL BE APPROPRIATED TOWARDS THE LEASE RENT NOTWITHSTANDING ANY DIRECTIONS/REQUEST OF THE LESSEE TO THE CONTRARY.' (P.B. 212 - 213) 24 24. THUS, AS AN INTEGRAL AND INSEPARABLE PART OF THE BUSINESS ACTIVITIES CARRIED ON BY THE APPELLANT, WHICH INVOLVED REALIZATION OF PREMIA IN LIEU OF ITS BUSINESS ACTIVITY OF ALLOTMENT OF INDUSTRIAL SITES (ALONG WITH INFRASTRUCTURE FACILITIES) DEVELOPED BY IT, THE APPELLANT HAS REALIZED INTEREST ON SO MUCH OF THE PREMIA WHICH HAS BEEN ALLOWED TO BE PAID IN INSTALLMENTS, BY THE ALLOTTEES. 25. FR OM THE DISCUSSIONS MADE IN THE FOREGOING PARAGRAPHS, IT IS AMPLY BORNE OUT THAT INTEREST EARNED BY THE APPELLANT IS THE PART OF 'PROFITS AND GAINS' DERIVED FROM THE 'UNDERTAKING'/ 'ENTERPRISE', NAMELY TRONICA CITY PROJECT, EPIP OF GREATER NOIDA AND EPIP, A GRA (ON WHICH EXEMPTION UNDER SECTION 80 - IA IS BEING CLAIMED) AS PER PARTICULARS GIVEN IN PARA 15 HEREINABOVE. THE RECEIPT/ACCRUALS IN THE FORM OF INTEREST, 'SPRUNG' DIRECTLY FROM THE ACTIVITIES CARRIED ON BY THE 'UNDERTAKING'/ 'ENTERPRISE'. THEREFORE, THE SAME SHOULD BE TREATED TO HAVE BEEN DERIVED FROM THE 'FIRST DEGREE SOURCE', WHICH IS RULE PRO POUNDED BY THE HON'BLE APEX COURT IN THE CASE OF LIBERTY INDIA VS. CIT REPORTED IN (2009) 317 ITR 218, TO DETERMINE AS TO WHETHER THE 'INCOME' IN RELATION TO WHICH EXEMPTION OR BENEFIT OF EXEMPTION FROM TAXATION IS CLAIMED HAS BEEN DERIVED FROM 'ELIGIBLE B USINESS'. 26. IN THE SAID CASE, THE QUESTION THAT CAME UP FOR CONSIDERATION BEFORE THE HON'BLE APEX COURT WAS WHETHER DEPB CREDIT/DUTY DRAWBACK RECEIPTS IS 'FIRST DEGREE SOURCE' BY ITSELF SO AS TO BE ELIGIBLE FOR RELIEF UNDER SECTION 80 HHC. AFTER ANALYZI NG FACTS OF THE SAID CASE, THE HON'BLE APEX COURT ARRIVED AT A CONCLUSION THAT DEPB CREDIT/DUTY DRAWBACK RECEIPTS OWE THEIR ORIGIN TO THE INCENTIVE SCHEMES FORMULATED BY THE GOVERNMENT OF INDIA AND NOT TO THE EXPORT BUSINESS AS SUCH. THUS INCENTIVE SCHEME BEING CONSTITUTING THE 'FIRST DEGREE SOURCE' AND NOT THE 'EXPORTS', THE BENEFIT ADMISSIBLE UNDER SECTION 80 HHC WAS NOT ADMISSIBLE WITH REFERENCE TO THE RECEIPTS UNDER THE HEAD DEPB AUDIT/DUTY DRAWN BACK RECEIPTS. KIND ATTENTION OF YOUR HONOUR IS INVITED T O THE DISCUSSION APPEARING ON PAGES 232, 233 AND 234 OF THE SAID REPORT, WHICH FOR THE SAKE OF INSTANT REFERENCE IS REPRODUCED HEREUNDER: - 'ANALYZING CHAPTER VI - A, WE FIND THAT SECTION 80 - IB/80 - IA ARE A CODE BY THEMSELVES AS THEY CONTAIN BOTH SUBSTANTIVE AS WELL AS PROCEDURAL PROVISIONS. THEREFORE, WE NEED TO EXAMINE WHAT THESE PROVISIONS PRESCRIBE FOR 'COMPUTATION OF PROFITS OF THE ELIGIBLE BUSINESS.' IT IS EVIDENT THAT SECTION 80 - IB PROVIDES FOR ALLOWING OF DEDUCTION IN RESPECT OF 25 PROFITS AND GAINS DERIV ED FROM THE ELIGIBLE BUSINESS. THE WORDS 'DERIVED FROM' ARE NARROWER IN CONNOTATION AS COMPARED TO THE WORDS 'ATTRIBUTABLE TO'. IN OTHER WORDS, BY USING THE EXPRESSION 'DERIVED FROM', PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. IN THE PRESENT BATCH OF CASES, THE CONTROVERSY WHICH ARISES FOR DETERMINATION IS WHETHER THE DEPB CREDIT/DUTY DRAWBACK RECEIPT COMES WITHIN THE FIRST DEGREE SOURCES? ACCORDING TO THE ASSESSEE(S), DEPB CREDIT/DUTY DRAWBACK RECEIPT REDUCES THE VALUE OF PURCHASES ( COST NEUTRALIZATION), HENCE, IT COMES WITHIN FIRST DEGREE SOURCE AS IT INCREASES THE NET PROFIT PROPORTIONATELY. ON THE OTHER HAND, ACCORDING TO THE DEPARTMENT, DEPB CREDIT/DUTY DRAWBACK RECEIPTS DO NOT COME WITHIN FIRST DEGREE SOURCE AS THE SAID INCENTIVE S FLOW FROM THE INCENTIVE SCHEMES ENACTED BY THE GOVERNMENT OF INDIA OR FROM SECTION 75 OF THE CUSTOMS ACT, 1962. HENCE, ACCORDING TO THE DEPARTMENT, IN THE PRESENT CASE, THE FIRST DEGREE SOURCE IS THE INCENTIVE SCHEME/PROVISIONS OF THE CUSTOMS ACT. IN THI S CONNECTION, THE DEPARTMENT PLACES HEAVY RELIANCE ON THE JUDGMENT OF THIS COURT IN STERLING FOODS (1999) 237 ITR 579. THEREFORE, IN THE PRESENT CASES, IN WHICH WE ARE REQUIRED TO EXAMINE THE ELIGIBLE BUSINESS OF AN INDUSTRIAL UNDERTAKEN, WE NEED TO TRACE THE SOURCE OF THE PROFITS TO MANUFACTURE, (SEE CIT V. KIRLOSKAR OIL ENGINES LTD. REPORTED IN (1986) 157ITR 762). CONTINUING OUR ANALYSIS OF SECTION 80 - IA/80 - IB IT MAY BE MENTIONED THAT SUB - SECTION (13) OF SECTION 80 - IB PROVIDES FOR APPLICABILITY OF THE PR OVISIONS OF SUB - SECTION (5) AND SUB SECTIONS (7) TO (12) OF SECTION 80 - IA, SO FAR AS MAY BE, APPLICABLE TO THE ELIGIBLE BUSINESS UNDER SECTION 80 - IB. THEREFORE, AT THE OUTSET, WE STATED THAT ONE NEEDS TO READ SECTIONS 80 - 1, 80 - IA AND 80 - IB AS HAVING A COMM ON SCHEME. ON A PERUSAL OF SUB - SECTION (5) OF SECTION 80 - IA, IT IS NOTICED THAT IT PROVIDES FOR THE MANNER OF COMPUTATION OF PROFITS OF AN ELIGIBLE BUSINESS. ACCORDINGLY, SUCH PROFITS ARE TO BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS IS THE ONLY SOURCE OF IN COME OF THE ASSESSEE. THEREFORE, THE DEVICES ADOPTED TO REDUCE OR INFLATE THE PROFITS OF ELIGIBLE BUSINESS HAVE GOT TO BE REJECTED IN VIEW OF THE OVERRIDING PROVISIONS OF SUB - SECTION (5) OF SECTION 80 - IA, WHICH ARE ALSO REQUIRED TO BE READ INTO SECTION 80 - IB (SEE SECTION 80 - IB(13). WE MAY REITERATE THAT SECTIONS 80 - 1, 80 - IA AND 8Q - IB HAVE A 26 COMMON SCHEME AND IF SO READ IT IS CLEAR THAT THE SAID SECTIONS PROVIDE FOR INCENTIVES IN THE FORM OF DEDUCTIONS) WHICH ARE LINKED TO PRO F ITS AND NOT TO INVESTMENT ON AN ANALYSIS OF SECTIONS 80 - IA AND 80 - IB IT BECOMES CLEAR THAT ANY INDUSTRIAL UNDERTAKING, WHICH BECOMES ELIGIBLE ON SATISFYING SUB - SECTION (2), WOULD BE ENTITLED TO DEDUCTION UNDER SUB - SECTION (1) ONLY TO THE EXTENT OF PROFITS DERIVED FROM SUCH INDUSTRIAL UN DERTAKING AFTER SPECIFIED DATE (S). HENCE, APART FROM ELIGIBILITY, SUB - SECTION (I) PURPORTS TO RESTRICT THE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF PROFITS. THIS IS THE IMPORTANCE OF THE WORDS 'DERIVED FROM INDUSTRIAL UNDERTAKING' AS AGAINST 'PRO FITS ATTRIBUTABLE TO INDUSTRIAL UNDERTAKING'. DEPB IS AN INCENTIVE. IT IS GIVEN UNDER THE DUTY EXEMPTION REMISSION SCHEME. ESSENTIALLY, IT IS AN EXPORT INCENTIVE. NO DOUBT, THE OBJECT BEHIND DEPB IS TO NEUTRALIZE THE INCIDENCE OF CUSTOMS DUTY PAYMENT ON T HE IMPORT CONTENT OF EXPORT PRODUCE. THIS NEUTRALIZATION IS PROVIDED FOR BY CREDIT TO CUSTOMS DUTY AGAINST EXPORT PRODUCT. UNDER DEPB, AN EXPORTER MAY APPLY FOR CREDIT AS A PERCENTAGE OF THE FIB VALUE OF EXPORTS MADE IN FREELY CONVERTIBLE CURRENCY. CREDIT IS AVAILABLE ONLY AGAINST THE EXPORT PRODUCE AND AT RATES SPECIFIED BY THE DGFT FOR IMPORT OF RAW MATERIALS, COMPONENTS, ETC. DEPB CREDIT UNDER THE SCHEME HAS TO BE CALCULATED BY TAKING INTO ACCOUNT THE DEEMED IMPORT CONTENT OF THE EXPORT PRODUCT AS PER BA SIC CUSTOMS DUTY AND SPECIAL ADDITIONAL DUTY PAYABLE ON SUCH DEEMED IMPORTS. THEREFORE, IN OUR VIEW, DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED BY CENTRAL GOVERNMENT OR FROM SECTION 75 O F THE CUSTOMS ACT, 1962, HENCE, INCENTIVES P ROFITS ARE NOT PROFITS DERIVED FROM THE ELIGIBLE BUSINESS UNDER SECTION 80 - IB. THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKINGS.' (EMPHASIS ADDED BY THE ASSESSEE) 27. IN A SUBSEQUENT DECISION IN THE CASE REPORTED AS TOPMAN EXPORTS VS. CIT REPORTED IN (2012) 342 ITR 49 THE HON'BLE APEX COURT HAS ADVANCED THE 'THEORY' FURTHER, BY HOLDING THAT WHEN A RECEIPT HAS GOT A DIRECT NEXUS WITH THE ELIGIBLE BUSINESS, SUCH 'RECEIPT' SHOULD BE HELD TO BE THE INCOME DERIVED FROM SUCH BUSINESS. THIS IS EVIDENT OUT FROM THE OVERALL BACKGROUND OF THE 27 CASE OF TOPMAN EXPORTS AS PER DISCUSSION AS APPEARING IN THE PARAGRAPHS THAT FOLLOWS. 28. OWING TO SHARP CLEAVAGE OF JUDICIAL OPINION ON THE ISSUE AS TO 'WHETHER THE ENTIRE AMOUNT RECEIVED ON SALE OF DEPB ENTITLEMENTS REPRESENTS PROFIT CHARGEABLE UNDER SECTION 28(IIIB) OF THE INCOME - TAX ACT OR THE PROFIT REFERRED TO THEREIN REQUIRES ANY ARTIFICIAL COST TO BE INTERPOLATED?', A SPECIAL BENCH OF THE ITAT, BOMBAY WAS CONSTITUTED IN THE CASES OF TOPMAN EXPORTS V S. ITO, KALPATARU COLOURS & CHEMICALS VS. ADDITIONAL CIT AND OTHERS. IT WAS UNDISPUTED FROM BOTH THE SIDES THAT DEPB IS A 'CASH ASSISTANCE' ALLOWED TO EXPORTERS UNDER EXPORT PROMOTION SCHEME FRAMED BY THE GOVERNMENT. HOWEVER, THE PARTIES DIFFERED ON THE IS SUE OF TAXABILITY OF SALE PROCEEDS OF DEPB. THE ASSESSEE'S CONTENTION WAS DEPB IS DIRECTLY CONNECTED WITH EXPORTS AND ACCORDINGLY TAXABLE UNDER CLAUSE (IIIB) OF SECTION 28 OF THE ACT AS PROFITS OF EXPORT BUSINESS. ON THE CONTRARY, THE REVENUE'S PLEA WAS TH AT THE ENTIRE SALE PROCEEDS OF DEPB (INCLUDING FACE VALUE THEREOF) CONSTITUTE A SEPARATE SOURCE OF INCOME INDEPENDENT FROM INCOME FROM BUSINESS OF EXPORT. THE CONTROVERSY WAS RESOLVED BY THE HON'BLE SPECIAL BENCH OF THE ITAT VIDE ITS JUDGMENT AND ORDER DAT ED 11.08.2009, [SINCE REPORTED IN (2009) 318 ITR (AT) 87 (BOM)(SB)] BY HOLDING THAT FACE VALUE OF DEPB AT THE POINT OF ACCRUAL THEREOF IS CONNECTED WITH EXPORTS AND TAXABLE IN THE YEAR OF ACCRUAL UNDER CLAUSE (IIIB) OF SECTION 28 OF THE ACT. THEREAFTER, PR OCEEDS REALIZED ON SALE OF DEPB, ADJUSTED BY THE FACE VALUE THEREOF, CONSTITUTED SEPARATE SOURCE OF INCOME AND ASSESSABLE AS PROFITS OF BUSINESS, WHOLLY UNCONNECTED WITH EXPORT BUSINESS UNDER CLAUSE (IIID) OF SECTION 28 OF THE ACT. CONSEQUENTLY, IT WAS FUR THER HELD THAT PROFITS REALIZED ON SALE OF DEPB, AS ARRIVED AT AFTER ADJUSTMENT OF FACE VALUE OF DEPB BENEFIT OF SECTION 80HHC SHALL BE DENIED. IN SHORT, THE VIEW TAKEN BY SPECIAL BENCH OF THE HON'BLE ITAT (SB) WAS THAT FACE VALUE OF DEPB IS THE INCOME F ROM EXPORT BUSINESS AS PER CLAUSE (IIIB) OF SECTION 28 ELIGIBLE FOR BENEFIT UNDER SECTION 80 HHC AND ANY SURPLUS ARISING THEREFROM ON SALE OF DEPB IS THE INCOME FROM TRADING IN DEPB TAXABLE AS INDEPENDENT SOURCE OF INCOME, WHOLLY UNCONNECTED WITH THE EXPOR T BUSINESS, UNDER CLAIM (IIID) OF THE ACT. RELEVANT PARA FROM THE SAID JUDGMENT OF SPECIAL BENCH IS REPRODUCED HEREUNDER: - RATIONALE BEHIND SECTION 28(IIID) AND (IIIE): 28 IT IS NOTICED ABOVE THAT EXPORT INCENTIVE IS PROVIDED BY WAY OF THE FACE VALUE OF DE PB. IT IS THIS VALUE, WHICH HAS RELATION WITH THE EXPORT BUSINESS. THE SUBSEQUENT SALE OF DEPB IS A STEP DIVORCED FROM EXPORT. THE RELATION BETWEEN THE ACT OF EXPORTING GOODS AND DEPB EXISTS ONLY UPTO THE STAGE OF ITS ACQUISITION AND NOT THEREAFTER. ONCE T HE DEPB IS ACQUIRED PURSUANT TO EXPORTS, THE SUBSEQUENT EVENTS OF ITS UTILIZATION FOR SELF CONSUMPTION OR MAKING IMPORTS FOR RESALE OR THE SALE OF DEPB AS SUCH, ARE INDEPENDENT TRANSACTIONS UNRELATED TO EXPORT. SECTION 80HHC PROVIDES DEDUCTION IN RESPECT O F INCOME FROM EXPORT BUSINESS. CONSIDERING THE TEXT OF SECTION 80HHC AND THE MANNER OF COMPUTATION OF DEDUCTION IT HAS BEEN NOTICED ABOVE THAT THOUGH THE FACE VALUE OF DEPB IS PROFIT FROM EXPORT BUSINESS, BUT THE PROFIT ON SALE OF DEPB IS NOT COVERED WITHI N THE SCHEME OF THIS SECTION INASMUCH AS THE DEPB HAS ONLY A LOCAL MARKET FROM THE POINT OF VIEW OF ITS SALE. WHEN DEPB IS SOLD, THE SALE PROCEEDS WILL FORM PART OF TOTAL TURNOVER BUT NOT EXPORT TURNOVER FOR THE REASON THAT THE SALE PROCEEDS ARE NOT RECEIV ED IN OR BROUGHT INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE. IN THAT SITUATION THE SALE PROCEEDS OF DEPB WILL BE INCLUDED IN THE TOTAL TURNOVER BUT NOT THE EXPORT TURNOVER AND RESULTANTLY THE DEDUCTION TO THE EXTENT OF PROFIT ON SALE OF DEPB WILL BE AUTOMA TICALLY DENIED WHEN THE PROFITS OF BUSINESS ARE PROPORTIONATELY REDUCED IN THE RATIO OF EXPORT TURNOVER TO TOTAL TURNOVER.' (EMPHASIS ADDED) 29. THE REVENUE FELT AGGRIEVED BY THE SAID JUDGMENT PASSED BY SPECIAL BENCH OF THE ITAT AND PREFERRED AN APPEAL UNDER SECTION 260A BEFORE THE HON'BLE BOMBAY HIGH COURT. THE QUESTIONS FORMULATED WERE AS UNDER: - '(A) WHETHER THE TRIBUNAL IS JUSTIFIED IN HOLDING THAT THE ENTIRE AMOUNT RECEIVED ON THE SALE OF THE DUTY ENTITLEMENT PASSBOOK DOES NOT REPRESENT PROFITS CHARGEABLE UNDER SECTION 28(HID) OF THE INCOME - TAX ACT, 1961, AND THAT THE FACE VALUE OF THE DUTY ENTITLEMENT PASSBOOK SHALL BE DEDUCTED FROM THE SALE PROCEEDS? (B) WHETHER THE TRIBUNAL IS JUSTIFIED IN HOLDING THAT THE FACE VALUE OF THE DUTY ENTITLEMENT P ASSBOOK IS CHARGEABLE TO TAX UNDER SECTION 28(IIIB) AT THE TIME OF ACCRUAL OF INCOME, I.E. WHEN THE APPLICATION FOR DUTY ENTITLEMENT 29 PASSBOOK IS FILED WITH THE COMPETENT AUTHORITY PURSUANT TO THE EXPORTS MADE AND THAT THE PROFITS ON THE SALE OF DUTY ENTITL EMENT PASSBOOK REPRESENTING THE EXCESS OF THE SALE PROCEEDS OVER THE FACE VALUE IS LIABLE TO BE CONSIDERED UNDER SECTION 28(IIID) AT THE TIME OF SALE ? 30. THAT THE HON'BLE BOMBAY HIGH COURT DECIDED THE SAME VIDE JUDGMENT AND ORDER DATED 28/29 JUNE, 2010 REPORTED IN (2010) 328 ITR 451 IN THE NAME OF CIT VS. KALPATARU COLOURS AND CHEMICALS. IN TERMS OF THE SAID JUDGMENT, THE DECISION OF HON'BLE SPECIAL BENCH OF THE ITAT, BOMBAY WAS REVERSED. RELEVANT PASSAGE FROM THE SAID JUDGMENT IS REPRODUCED HEREUNDER: - 'THE SUBMISSION THAT PRIOR TO THE INSERTION OF CLAUSE (HID) IN SECTION 28, THE FACE VALUE OF THE DEPB CREDIT REALIZED ON THE TRANSFER OF SUCH CREDIT CONSTITUTED EXPORT PROFITS, BUT NOT THE AMOUNT REALIZED IN EXCESS OF THE FACE VALUE OF THE DEPB IS SIMILA RLY WITHOUT ANY BASIS. THIS IS BECAUSE (I) THE OBJECT OF THE DEPB WAS TO FURNISH AN INCENTIVE TO EXPORTERS SO AS TO ADJUST THE CREDIT AGAINST THE CUSTOMS DUTY PAYABLE ON ANY GOODS IMPORTED INTO INDIA. HOWEVER, WHERE AN EXPORTER INSTEAD OF UTILIZING THE CRE DIT TRANSFERS THE CREDIT AT A PREMIUM, IT CANNOT BE SAID THAT THE EXPORTER HAS UTILIZED THE CREDIT; (II) THE LEGISLATURE CONSIDERS THAT THE CUSTOMS DUTY AND EXCISE DUTY PAID ON RAW MATERIALS USED IN THE EXPORT PRODUCT, WHEN REPAID OR REPAYABLE AS DUTY DRAW BACK, WOULD NOT CONSTITUTE EXPORT PROFIT. SIMILARLY, WHEN THE DEPB CREDIT IS NOT UTILIZED IN THE BUSINESS BUT IS TRANSFERRED FOR VALUE, THE AMOUNT RECEIVED ON THE TRANSFER WOULD BE BUSINESS PROFITS AND NOT EXPORT PROFITS IRRESPECTIVE OF WHETHER THE AMOUNT WHICH IS REALIZED IS EQUAL TO, LARGER THAN OR LESS THAN THE FACE VALUE OF THE DEPB CREDIT. PARLIAMENT HAS CONSIDERED THAT THE ENTIRETY OF THE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB SHALL CONSTITUTE PROFITS OF BUSINESS UNDER SECTION 28(IIID). SINCE SUC H PROFITS ARE NOT EXPORT PROFITS PARLIAMENT DIRECTED THAT NINETY PER CENT OF THOSE PROFITS WOULD BE EXCLUDED WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC; (HI) PARLIAMENT CONSIDERED THAT AN EXPORTER WHO INSTEAD OF UTILIZING THE DEPB CR EDIT FOR PAYING CUSTOMS DU T Y ON IMPORTED GOODS MAKES A PROFIT BY TRANSFERRING THE DEPB, WOULD FORM A SEPARATE CLASS AND SEEKS TO TAX THE RECEIPTS ON THE TRANSFER OF THE DEPB 30 WOULD FORM A SEPARATE CLASS AND SEEKS TO TAX THE RECEIPTS ON THE TRANSFER OF THE D EPB CREDIT AND MAKE A PROFIT CANNOT BE PLACED ON PART WITH THOSE EXPORTERS WHO UTILIZE THE CREDIT FOR PAYING THE CUSTOMS DUTY ON THE IMPORTED GOODS; (IV) THE FACT THAT PARLIAMENT DID NOT CONSIDER THE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB TO BE EXPORT PROFIT CANNOT BE A GROUND TO HOLD THAT THE RECEIPTS ON THE TRANSFER OF DEPB CREDIT ARE NOT BUSINESS PROFITS. COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITS THAT THE ENTIRE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB CREDIT IS BUSINESS PROFIT, BUT IT W A S CONTENDED THAT WHAT IS INCLUDED IN SECTION 28(IIID) IS THE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB CREDIT IN EXCESS OF THE FACE VALUE OF THE DEPB AND THE AMOUNT RECEIVED TO THE EXTENT OF THE FACE VALUE OF THE DEPB WOULD BE COVERED UNDER SECTION 28(IIIB). THERE IS NO MERIT IN THIS CONTENTION BECAUSE, (A) THE DEPB CREDIT WAS NOT IN EXISTENCE WHEN SECTION 28(IIIB) WAS INSERTED BY THE FINANCE ACT OF 1990. DEPB CREDIT WAS INTRODUCED WITH EFFECT FROM APRIL 1, 1997 WHICH WAS AFTER THE INSERTION OF CLAUS E (IIIB) IN SECTION 28; (B) SECTION 28(IIIB) REFERS TO CASH ASSISTANCE (BY WHATEVER NAME CALLED) RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT PURSUANT TO A SCHEME OF THE GOVERNMENT. THE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB CREDIT IS NOT RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT PURSUANT TO A SCHEME OF THE GOVERNMENT WITHIN THE MEANING OF CLAUSE (IIIC); AND (C) WHEN SECTION 28(IIID) SPECIFICALLY DEALS WITH PROFITS REALIZED ON THE TRANSFER OF THE DEPB CREDIT, IT WOULD BE IMPERMISSIBLE AS A MATTER OF FIRST PRINCIPLE TO BIFURCATE THE FACE VALUE OF THE DEPB AND THE AMOUNT RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB. FOR ALL THESE REASONS, WE HAVE COME TO THE CONCLUSION THAT THE VIEW OF THE TRIBUNAL ON THE TWO QUESTIONS OF LAW FORMULATED BY THE REV ENUE IS UNSUSTAINABLE. IN THE CIRCUMSTANCES, WE ALLOW THE APPEAL BY ANSWERING THE FIRST QUESTION OF LAW AS FORMULATED IN THE NEGATIVE.' (EMPHASIS ADDED) 31. THEREAFTER, 'TOPMAN EXPORTS' AND OTHER ASSESSEES' WHO WERE AFFECTED BY THE SAID JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF KALPATARU COLOURS AND CHEMICALS (SUPRA) TOOK THE MATTER BEFORE THE HON'BLE SUPREME COURT. THE LEAD CASE WAS THAT OF TOPMAN EXPORTS. THE ISSUE INVOLVED WAS, IN THE 31 CONTEXT OF RELIEF UNDER SECTION 80 HHC, AS TO WHETHER VALUE OF DEPB, DUTY DRAW BACK AND OTHER EXPORT INVENTIVE, COULD BE HELD TO BE THE INCOME DERIVED FROM EXPORT BUSINESS SO AS TO BE ELIGIBLE FOR RELIEF UNDER SECTION 80 HHC. THE MATTER WAS DECIDED BY THEIR LORDSHIPS VIDE JUDGMENT AND ORDER DATED 08.02.2012 [SINCE REPORTED IN (2012) 342 ITR 49]. 32. IN THE LATER PART OF THE SAID JUDGMENT, THEIR LORDSHIPS OF THE HON'BLE APEX COURT REFERRED TO THE ARGUMENTS ADVANCED BY RIVAL PARTIES, AS REPRODUCED HEREUNDER : - (A) ARGUMENTS FROM THE SIDE OF THE ASSESSEE, BEFORE THE HON'BLE SUPREME COURT : - '.........THEY SUBMITTED THAT THE DEPB WAS, THEREFORE, CHARGEABLE TO INCOME - TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' UNDER CLAUSE (IIIB) OF SECTION 28 OF THE ACT. THEY SUBMITTED THAT THE CONTENTI ON OF THE REVENUE THAT THE DEPB WOULD BE INCOME CHARGEABLE TO TAX ONLY ON TRANSFER AND WOULD BE COVERED UNDER CLAUSE (HID) OF SECTION 28 OF THE ACT IS NOT CORRECT. THEY SUBMITTED THAT IT WILL BE CLEAR FROM DIFFERENT PROVISIONS OF THE DEPB SCHEME THAT THE O BJECT OF GRANTING THE DEPB TO AN EXPORTER IS TO NEUTRALIZE THE INCIDENCE OF CUSTOM DUTIES WHICH HAS BEEN INCURRED ON THE IMPORT COMPONENT OF THE EXPORT PRODUCT AND THIS NEUTRALIZATION IS ACHIEVED BY GRANT OF DUTY CREDIT OF THE AMOUNT SPECIFIED IN THE DEPB SCHEME. THEY SUBMITTED THAT THE TRIBUNAL, THEREFORE, WAS RIGHT IN COMING TO THE CONCLUSION THAT THERE WAS A DIRECT RELATION BETWEEN THE DEPB AND THE COST OF INPUTS IMPORTED FOR MANUFACTURE OF THE EXPORT PRODUCT.' (B) ARGUMENT ON BEHALF OF THE REVENUE : 'LEARNED COUNSEL FOR THE REVENUE, ON THE OTHER HAND, SUPPORTED THE IMPUGNED JUDGMENT AND ORDERS OF THE HIGH COURT AND SUBMITTED THAT PROFIT ON TRANSFER OF THE DEPB WOULD REPRESENT THE ENTIRE SALE VALUE REALIZED BY THE ASSESSEE ON TRANSFER OF THE DEPB. HE S UBMITTED THAT THE HIGH COURT HAS RIGHTLY HELD THAT THE ASSESSEE DOES NOT INCUR ANY COST IN OBTAINING THE DEPB. HE ARGUED THAT THE DEPB IS AN EXPORT INCENTIVE GRANTED BY THE GOVERNMENT UNDER THE DEPB SCHEME AND IT HAS NO DIRECT RELATION WITH THE COST OF PUR CHASES MADE BY THE ASSESSEE AND, 32 THEREFORE, THE ASSESSEE IS NOT ENTITLED TO DEDUCT THE FACE VALUE OF THE DEPB FROM THE SALE PROCEEDS FOR DETERMINING THE PROFIT ARISING ON TRANSFER OF THE DEPB AND THE ENTIRE SALE PROCEEDS OF THE DEPB REPRESENT THE PROFITS E ARNED BY THE ASSESSEE ON TRANSFER OF THE DEPB. HE ARGUED THAT THE FINDINGS OF THE TRIBUNAL THAT THERE IS A DIRECT RELATION BETWEEN THE DEPB AND THE COSTS INCURRED BY THE ASSESSEE FOR IMPORTING INPUTS FOR MANUFACTURE OF EXPORT PRODUCTS IS, THEREFORE, NOT CO RRECT AND THE HIGH COURT WAS RIGHT IN SETTING ASIDE THE FINDINGS OF THE TRIBUNAL AND INCOMING TO THE CONCLUSION THAT THE ENTIRE SALE PROCEEDS OF THE DEPB REPRESENT THE PROFITS ON TRANSFER OF THE DEPB WITHIN THE MEANING OF CLAUSE (HID) OF SECTION 28 OF THE ACT.' 33. THAT AFTER CONSIDERING THE WHOLE GAMUT OF LAW AND THE ARGUMENTS ADVANCED BY THE RIVAL PARTIES (AS REFERRED TO ABOVE) THE LARGER BENCH OF THE APEX COURT (CONSTITUTED BY THREE HON'BLE JUDGES) DECIDED THE ISSUE VIDE JUDGMENT AND ORDER DATED 08.02.2 012 IN THE FOLLOWING MANNER : - FINDING OF THE HON'BLE APEX COURT: 'ON A READING OF THE AFORESAID PARAGRAPHS OF THE HAND BOOK ON THE DEPB AND THE EXPORT AND IMPORT POLICY OF THE GOVERNMENT OF INDIA, 1997 - 2002, IT IS CLEAR THAT THE OBJECTIVE OF THE DEPB SCHEME IS TO NEUTRALIZE THE INCIDENCE OF CUSTOMS DUTY ON THE IMPORT CONTENT OF THE EXPORT PRODUCTS. HENCE, IT HAS DIRECT NEXUS WITH THE COST OF THE IMPORTS MADE BY AN EXPORTER FOR MANUFACTURING THE EXPORT PRODUCTS. THE NEUTRALIZATION OF THE COST OF CUSTOMS DUTY UNDER THE DEPB SCHEME, HOWEVER, IS BY GRANTING A DUTY CREDIT AGAINST THE EXPORT PRODUCT AND THIS CREDIT CAN BE UTILIZED FOR PAYING CUSTOMS DUTY ON ANY ITEM WHICH IS FREELY IMPORTABLE. DEPB IS ISSUED AGAINST THE EXPORTS TO THE EXPORTER AND IS TRANSFER ABLE BY THE EXPORTER.' 34. THAT IN CONSEQUENCE OF THE SAID FINDING, THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF KALAPATARU (SUPRA) WAS SET - ASIDE AND THE APPEALS WERE ALLOWED. THUS, THE JUDGMENT OF THE HON'BLE SPECIAL BENCH OF THE ITAT IN THE CASE OF TOPMAN EXPORTS (SUPRA) GOT AFFIRMED. THE GIST OF THE SAID JUDGMENT OF THE SPECIAL BENCH OF THE TRIBUNAL IS THAT AT THE POINT OF ACCRUAL, THE FACE VALUE OF DEPB IS RELATED TO EXPORT BUSINESS AS IT IS GIVEN BY THE GOVERNMENT TO NEUTRALIZE THE COS T OF IMPORTS, WHICH ARE 33 USED IN THE GOODS MANUFACTURED AND SUPPLIED TO EXPORTS. SUBSEQUENT SALE OF SUCH DEPB CONSTITUTES A DIFFERENT BUSINESS AND ACCORDINGLY THE EXCESS OF SALES PROCEEDS OF DEPB AS ADJUSTED BY FACE VALUE THEREOF, IS THE BUSINESS WHOLLY UNC ONNECTED WITH EXPORT BUSINESS. DECISION IN THE CASE OF MEGHALAYA STEELS LTD. 35. THE TEST OF 'FIRST DEGREE SOURCE' AS HAS BEEN LAID DOWN BY THE HON'BLE APEX COURT IN 'LIBERTY INDIA' CASE TO DETERMINE AS TO WHETHER A PARTICULAR RECEIPT IS THE 'INCOME DERIVED' FROM THE UNDERTAKING/ENTERPRISE STAND FULLY SATISFIED IN THE INSTANT CASE, LOOKING TO THE NATURE OF RECEIPT UNDER THE HEAD 'INTEREST' AS HAS BEEN DISCUSSED AT LENGTH HEREINFORE. THE SAID RULE OF 'FIRST DEGREE SOURCE' AS HAS BEEN LAID DOWN BY THE H ON'BLE APEX COURT IN THE CASE OF 'LIBERTY INDIA' HAS BEEN SPECIFICALLY APPLIED BY THE HON'BLE GAUHATI HIGH COURT IN THE CASE OF CIT VS. MEGHALAYA STEELS LTD. REPORTED IN (2013) 356 ITR 235, COPY OF WHICH APPEAR AT PAGES 304 TO 354 OF THE COMPILATION ALREAD Y PLACED ON RECORD. THE SAID JUDGMENT HAS BEEN DELIVERED BY THE HON'BLE GAUHATI HIGH COURT, SPECIFICALLY IN THE CONTEXT OF COMPUTATION OF INCOME UNDER SECTION 80IB AND 80IC OF THE ACT AND IS APPLICABLE IN THE APPELLANT'S CASE. 36. OTHER CASE LAWS ON THIS ISSUE AS APPEARING IN THE COMPILATION ARE LISTED HEREIN BELOW: - (I) CIT VS. GOVINDA CHOUDHURY & SONS REPORTED IN (1993) 203 ITR 881 (SC) C OPY APPEARING AT PAGES 294 TO 298 OF THE PAPER BOOK) (II) CIT VS. VIDYUT CORPORATION REPORTED IN (2010) 324 ITR 221(BOMBAY) (COPY APPEARING AT PAGES 298 TO 303 OF THE PAPER BOOK). (III) JAGDISHPRASAD M. JOSHI VS. DCIT REPORTED IN (2005) 97 TTJ 924 (COPY APPEARING AT PAGES 355 TO 358) ( IV) ACIT VS. MAXCARE LABORATORIES LTD. REPORTED IN (2005) 92 ITD 11 (COPY APPEARING AT PAGES 359 TO 370) WHEREIN THE CASE OF JAGDISHPRASAD (SUPRA) HAS BEEN FOLLOWED. 37. WHILE GIVING DIRECTIONS FOR EXCLUSION OF INTEREST AS PER DETAILS GIVEN IN PARA .... HEREINFORE, FROM COMPUTATION OF ELIGIBLE PROFIT UNDER SECTION 80IA, THE L D. CIT(A) HAS REFERRED TO HIS ORDERS FOR EARLIER ASSESSMENT YEARS WHEREIN VARIOUS CASE LAWS HAD BEEN CITED. THE SAID CASE LAWS HAVE DULY BEEN DEALT WITH IN 34 PARAS 15,16,17,18,19 A ND 20 OF THE WRITTEN SUBMISSIONS DATED 26.03.2012 FILED BEFORE THE ID. CIT(A), COPY APPEARING AT PAGES 209 TO 225 OF THE PAPER BOOK, RELEVANT PASSAGES APPEARING AT PAGES 217 TO 223 THEREOF. FURTHER RELIANCE IS SPECIFICALLY PLACED ON THE SUBMISSIONS DATED 2 6.03.2012 AS MADE BEFORE THE ID. CIT(A) - I, KANPUR DURING THE COURSE OF HEARING OF APPEAL (COPY APPEARING AT PAGES 209 TO 225 OF THE PAPER BOOK). 18. LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 19. WE HAVE CONSIDERED THE RI VAL SUBMISSIONS. WE FIND THAT IT IS SETTLED POSITION OF LAW THAT FOR THE PURPOSE OF ALLOWING DEDUCTION U/S 80IA, ONLY THOSE INCOME ARE TO BE CONSIDERED WHICH ARE DERIVED FROM THE ELIGIBLE ACTIVITY AND NOT THOSE INCOME WHICH ARE IN RELATION TO THE ELIGIBLE ACTIVITY. AS PER THE DETAILS BROUGHT ON RECORD BY LEARNED A.R. OF THE ASSESSEE IN PARA 16 OF THE WRITTEN SUBMISSIONS AS REPRODUCED ABOVE, IT IS SEEN T HAT IT INCLUDES PROCESSING FEES , MISC. RECEIPT , INT EREST MONEY & PREMIUM FORFEITURE , USE & OCCUPATION CHARGES , RENT RECEIVED , T IME EXTENSION FEE , INTEREST ON FDR , S UB LETTING CHARGES , INT EREST O N SEWERAGE CHARGES , S ALES OF APPLICATION FORMS/TEF ETC , R ENT R ECEIVED ON FLATTERED FACTORY ETC. THE DEDUCTION U/S 80IA HAS BEEN CLAIMED BY THE ASSESSEE IN RESPECT OF DEVELOPING INFRASTRUCTURE FACILITY AS PER SUB SECTION (4) OF SECTION 80IA. NOW THE QUESTION IS WHETHER THESE RECEIPTS OF THE ASSESSEE CAN BE SAID TO B E INCOME DERIVED FROM THIS ACTIVITY OF THE ASSESSEE COMPANY. IN OUR CONSIDERED OPINION, IT CANNOT BE SAID THAT THESE RECEIPTS ARE DERIVED FROM THE ACTIVITY OF THE ASSESSEE COMPANY REGARDING DEVELOPMENT OF INFRASTRUCTURE FACILITY. AT THE BEST, IT CAN BE S AID THAT THESE RECEIPTS ARE IN RELATION TO THIS ACTIVITY OF THE ASSESSEE COMPANY BUT IT CANNOT BE ACCEPTED THAT THESE RECEIPTS ARE DERIVED FROM THIS ACTIVITY OF THE ASSESSEE COMPANY REGARDING DEVELOPMENT OF INFRASTRUCTURE FACILITY. THEREFORE, THESE RECEIP TS ARE NOT ELIGIBLE FOR DEDUCTION U/S 80IA. VARIOUS JUDGMENTS CITED BY THE LEARNED AR IN HIS WRITTEN SUBMISSIONS ARE NOT APPLICABLE FOR THIS REASON THAT THESE RECEIPTS ARE NOT INCOME DERIVED FROM THE ACTIVITY OF THE ASSESSEE 35 COMPANY REGARDING DEVELOPMENT O F INFRASTRUCTURE FACILITY. HENCE, IN OUR CONSIDERED OPINION, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF CIT(A) ON THIS ISSUE. THESE GROUNDS OF THE ASSESSEE ARE REJECTED. 20. GROUND NOS. 11 & 12 OF THE APPEAL ARE ALSO INTER CONNECTED, WHICH READ AS UNDER: 11. BECAUSE THE EXPENDITURE CLASSIFIED UNDER THE HEAD 'PRIOR PERIOD EXPENSES' ACCRUED AS A LIABILITY IN THE YEAR UNDER APPEAL AND THE SAME STOOD FULLY SUPPORTED BY RELEVANT BILLS AND VOUCHERS AND DIRECTIONS AS AFORESAID ARE WHOLLY VITIATED. 12. B ECAUSE ALL SUCH DETAILS AS WERE NECESSARY AND RELEVANT FOR THE PURPOSES OF ALLOWING DEDUCTION FOR SUMS AGGREGATING RS.90,12,343/ - AS STOOD CLASSIFIED UNDER THE HEAD 'ADJUSTMENT RELATING TO PREVIOUS YEAR' BEING AVAILABLE ON RECORD, THE 'CIT(A)' HIMSELF SHOU LD HAVE ALLOWED THE SAME IN EXERCISE OF HIS APPELLATE JURISDICTION. 21. IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT ON THIS ISSUE , PARA NO. 38 TO 39 OF THE WRITTEN SUBMISSIONS FILED BY ASSESSEE ARE RELEVANT FOR DECIDING THIS ISSUE AND THEREFORE , THESE PARAS ARE REPRODUCED BELOW: 38. PRIOR PERIOD EXPENSES (GROUNDS NO.LL & 12): RELIANCE IN THIS RESPECT IS SPECIFICALLY PLACED ON PARAS 15 AND 16 OF THE WRITTEN SUBMISSIONS DATED 07.03.2012 (COPY APPEARING AT PAGES 135 TO 145) AS HAD BEEN MADE BEFORE THE ID. CIT(A) DURING THE COURSE OF HEARING, THE SAME ARE REPRODUCED HEREUNDER: - '15. GROUND NO.7 (ADJUSTMENT RELATING TO PREVIOUS YEAR - RS.90,12,34 2/ - . THE DISALLOWANCE IN QUESTION IS MADE UP MAINLY OF THE FOLLOWING ITEMS: - (RS.) (I) INTEREST ACCRUED WRITTEN BACK 80,84,933 (II)WATER CHARGES PAYABLE TO JAL SANSTHAN 5,92,000 AS REGARDS (I) ABOVE, IT IS IN THE NATURE OF 'BAD DEBTS' WRITTEN OFF AND AS PER THE LAW OF BAD DEBTS AS AMENDED 36 WITH EFFECT FROM 1.4.1989, IT IS ADMISSIBLE AS DEDUCTION ON THE BASIS OF 'WRITE OFF'. THE POINT AT ISSUE IS COVERED BY THE DECISION OF SPECIAL BENCH OF HON'BLE ITAT IN THE CASE OF DY. CIT VS. OMAN INTERNATIONAL BANK REPORTED IN 100 ITD 285. IN THE APPELLANT'S OWN CASE ALSO, SIMILAR WRITE - OFF HAD BEEN ALLOWED FROM THE STAGE OF THE HON'BLE ITAT IN THE ASSESSMENT YEAR 2001 - 02. A COPY OF THE ORDER PASSED BY THE HON'BLE ITAT IS ENCLOSED. 16. SIMILARLY, LIABILITY ON ACCOUNT OF PAYMENT OF 'WATER CHARGES,' AROSE IN THE YEAR UNDER APPEAL ITSELF, AS A RESULT OF DEMAND CREATED BY JAL SANSTHAN, KANPUR. THEREFORE, EVEN THOUGH IT WAS SHOWN UNDER THE HEAD 'PRIOR PERIOD EXPENSES', TO MEET THE REQUIREMENT OF DRAWING OF ANNUAL STATEMENT OF ACCOUNT AS PER SCHEDULE - VI OF THE COMPANIES ACT AND PART II AND III THEREOF, IT I S ADMISSIBLE AS DEDUCTION IN THIS YEAR ITSELF AS PER THE INCOME - TAX LAW.' (PAGE 142 OF THE PB) 39. FURTHER, ON THE ISSUE OF ACCRUAL OF EXPENSES, ALTHOUGH LEGITIMATE TO PRIOR PERIOD AND ADMISSIBILITY THEREOF IN THE YEAR UNDER APPEAL, RELIANCE IS PLACED ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF KRISHAK BHARATI COOPERATIVE LTD. VS. CIT & ANR REPORTED IN (2013) 96 DTR (DEL) 13, WHEREIN THEIR LORDSHIPS HAVE OBSERVE AND HELD AS UNDER: - 'CONCLUSION: WHEN, BY THEIR LETTER DT. 20 TH APRIL, 1988, TH E GOVERNMENT OF INDIA CONVERTED A PART OF THEIR EQUITY SHARE CAPITAL AMOUNTING TO RS.16 CRORES INTO A LOAN WITH RETROSPECTIVE EFFECT: RS.6 CRORES FROM 26 TH DEC., 1983 AND RS.10 CRORES FROM 20 TH JAN., 1984, CLAIM FOR DEDUCTION UNDER SECTION 36(L)(III) WAS N OT ALLOWABLE IN ASST, YRS. 1987 - 88 AND 1988 - 89, LIABILITY HAVING BEEN ACCRUED AND CRYSTALISED AFTER END OF PREVIOUS YEARS ENDING ON 30 TH JUNE, 1986 AND 30 TH JUNE, 1987 RESPECTIVELY.' A COPY OF THE SAID JUDGMENT IS ENCLOSED AS ANNEXURE - II HERETO, (PAGES 34 TO 42) 22. LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 37 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN THIS REGARD, WE FIND THAT THIS ISSUE WAS DECIDED BY CIT(A) AS PER PARA 7.2 & 7.2.1 OF HIS ORDER, WHICH ARE REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: 7.2 DECISION THE IMPUGNED INTEREST INCOME HAD ACCRUED TO THE ASSESSEE IN EARLIER YEARS AND HAD ALSO BEEN OFFERED TO TAX IN THOSE YEARS. DURING THE YEAR, AS PER THE NORMS (DETAILED IN THE ASSTT. ORDER), THE ASSESSEE COMPANY WROTE OFF THIS INTEREST AMOUNT DURING THE YEAR AS NOT RECOVERABLE. THE QUESTION IS WHETHER THE ASSESSEE COMPANY HAD WRITTEN OFF SUCH AMOUNTS EVEN IN THE LEDGER ACCOUNT OF THE RESPECTIVE ALLOTTEES. THERE ARE NO SUCH DETAILS ON THE RECORD. I HEREBY DIRECT THE A.O. TO CALL FOR THE RELEVANT DETAILS AND IN CASE, THESE AMOUNT HAVE BEEN WRITTEN OFF IN THE ACCOUNTS OF THE RESPECTIVE ALLOTTEES, THE SAME WOULD STAND ALLOWED. 7.2.1 AS REGARDS THE WATER CHARGES PAYA BLE TO JAL SANSTHAN, THE A.O. IS DIRECTED TO VERIFY THE DEMAND RAISED BY THE JAL SANSTHAN. IN CASE IT IS FOUND THAT SUCH DEMAND WAS RAISED DURING THE YEAR UNDER REFERENCE, THE IMPUGNED AMOUNT WOULD STAND ALLOWED AS DEDUCTION. 23.1 FROM THE ABOVE PARAS F ROM THE ORDER OF CIT(A), WE FIND THAT A CLEAR FINDING IS GIVEN BY CIT(A) THAT THE ASSESSEE HAS NOT ESTABLISHED THAT IT HAS WRITTEN OFF ALLEGED INTEREST IN THE LEDGER ACCOUNT OF THE RESPECTIVE ALLOTTEES. BEFORE US ALSO, NO EVIDENCE HAS BEEN BROUGHT ON RECO RD TO ESTABLISH THAT THIS INTEREST RECEIVABLE HAVING BEEN ACCRUED IN THE EARLIER YEAR HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT. REGARDING THE SECOND ASPECT OF THIS MATTER I.E. WATER CHARGES PAYABLE TO JAL SANSTHAN, WE FIND THAT CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO VERIFY THE DEMAND RAISED BY JAL SANSTHAN AND I N CASE IT IS FOUND THAT SUCH DEMAND WAS RAISED DURING THE YEAR UNDER REFERENCE, THE IMPUGNED AMOUNT WOULD STAND ALLOWED AS DEDUCTION . IN VIEW OF THESE FINDINGS OF CIT(A), WHICH COULD NOT BE CONTROVERTED BY LEARNED A.R. OF THE 38 ASSESSEE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY LEARNED CIT(A). THESE GROUNDS ARE ALSO REJECTED. 24. GROUND NO. 13 OF THE APPEAL IS AS UNDER: 13. BECAUSE THE 'CIT(A)' AFTER HAVING ACCEPTED, THAT THE PROVISIONS OF SECTION 14A READ WITH RULE 8D WERE NOT APPLICABLE IN THE YEAR UNDER APPEAL, HAS GROSSLY ERRED IN UPHOLDING AN ADHOC DISALLOWANCE OF RS.1,00,000/ - OUT OF EXPENDITURE CLAIMED BY THE 'APPE LLANT'. 25. IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT ON THIS ISSUE , PARA NO. 40 TO 42 OF THE WRITTEN SUBMISSIONS FILED BY ASSESSEE ARE RELEVANT FOR DECIDING THIS ISSUE AND THEREFORE, THESE PARAS ARE REPRODUCED BELOW: 40. AD HOC DISALLOWANCE UNDER SECTION 14A (GROUND NO.13): IT IS A MATTER OF RECORD THAT DIVIDEND INCOME HAS BEEN EARNED FROM SHARES IN WHICH INVESTMENT HAD BEEN MADE BY UPSIDC IN EARLIER YEARS (OUT OF ITS EQUITY AND OTHER SURPLUS FUNDS) AS A PART OF ITS ACTIVITIES RELATED TO LON G TERM FINANCE. NO BORROWED FUNDS HAVE BEEN INVESTED AND LOOKING TO THE NATURE OF BUSINESS CARRIED ON BY THE APPELLANT, NO OTHER EXPENDITURE ALSO WAS INCURRED OR EVEN REQUIRED TO BE INCURRED IN EARNING THE DIVIDEND INCOME. IT IS SIGNIFICANT THAT THERE IS N O FINDING BY THE ASSESSING OFFICER THAT ANY EXPENDITURE HAD BEEN INCURRED BY THE APPELLANT, IN EARNING THE SAID INCOME. 41. MORE OVER THE INCOME FROM DIVIDEND IS RS.3,32,369/ - ONLY, WHEREAS DISALLOWANCE HAS BEEN MADE FOR SUM OF RS.6,44,865/ - , BY APPLYING RULE 8D. THE LD. CIT(A) HAS CATEGORICALLY HELD THAT THE SAID RULE WAS NOT APPLICABLE IN THIS YEAR (ASSESSMENT YEAR 2007 - 08), YET HE HAS SUSTAINED AN AD HOC DISALLOWANCE OF RS.1.00 LACS, WHICH IS WHOLLY ILLEGAL, UNSUSTAINABLE BOTH ON FACTS AS WELL AS IN LAW . A REFERENCE IS ALSO MADE, IN THIS RESPECT, TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. WALFORT SHARE AND STOCK BROKERS P. LTD. REPORTED IN (2010) 326 ITR 1 (SC), WHEREIN AT PAGE 17 THE FOLLOWING PRINCIPLES HAS BEEN LAID DOWN: - 'THERE FORE, ONE NEEDS TO READ THE WORDS 'EXPENDITURE INCURRED' IN SECTION 14A IN THE CONTEXT OF THE SCHEME OF 39 THE ACT AND, IF SO READ, IT IS CLEAR THAT IT DISALLOWS CERTAIN EXPENDITURE INCURRED TO EARN EXEMPT INCOME FROM BEING DEDUCTED FROM OTHER INCOME WHICH IS INCLUDIBLE IN THE 'TOTAL INCOME' FOR THE PURPOSE OF CHARGEABILITY TO TAX.' 42. FURTHER RELIANCE IS ALSO PLACED ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. HERO MANAGEMENT SERVICE LTD. REPORTED IN (2014) 360 ITR 68 AND ALSO AN EARLI ER DECISION DATED 28.02.2012 PASSED BY HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CCI LTD. VS. JCIT IN ITA NO.359 OF 2011. 26. LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 27. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THE ASSESSMENT YEAR INVOLVED IS 2007 - 08 WHEREAS RULE 8D HAS BEEN MADE APPLICABLE FROM NEXT YEAR I.E. ASSESSMENT YEAR 2008 - 09 AND THEREFORE, RULE 8D IS NOT APPLICABLE. THIS ISSUE WAS DECIDED BY CIT(A) AS PER PARA 8.1 OF HIS ORDER WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: 8.1 DISCUSSION/DECISION: I HAVE GONE THROUGH THE FINDINGS GIVEN BY THE A.O. AND ALSO THE SUBMISSIONS MADE BY THE LD. A.R. IN VIEW OF THE OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS DCIT (328 ITR 81), IT HAS TO BE HELD THAT RULE 8D COULD NOT BE INVOKED BY THE A.O. FOR THE A.Y. 2007 - 08, HOWEVER, THERE IS NO EMBARGO ON THE A.O. IN COMPUTING THE DISALLOWANC E UNDER SEC. 14A ON A REASONABLE AND FAIR BASIS. THIS ISSUE ALSO CAME BEFORE THE UNDERSIGNED IN THE APPEAL PROCEEDINGS FOR EARLIER YEARS (IN ASSESSEE'S OWN CASE), WHEREIN IT WAS DECIDED THAT A L.S. DISALLOWANCE OF RS. 1 LAC WOULD MEET THE END OF JUSTICE. O RDERED ACCORDINGLY. 27.1 WE FIND THAT CIT(A) HAS CONFIRMED THE DISALLOWANCE OF RS. 1 LAC IN LINE WITH HIS DECISION ON THIS ISSUE IN EARLIER YEARS. THIS IS NOT THE CASE OF THE ASSESSEE THAT SUCH DECISION OF CIT(A) IN EARLIER YEAR HAS BEEN REVERSED BY THE TRIBUNAL. OTHERWISE ALSO, IN OUR CONSIDERED OPINION, RS. 1 LAC DISALLOWANCE IS REASONABLE IN THE FACTS OF THE PRESENT CASE BECAUSE THE DISALLOWANCE WORKED 40 OUT BY THE ASSESSING OFFICER AS PER RULE 8D WAS RS.5,90,760/ - BEING 0.5% OF AVERAGE INVESTMENT. AS AGAINST THIS, CIT(A) HAS CONFIRMED THE DISALLOWANCE OF RS. 1 LAC OUT OF ADMINISTRATIVE EXPENSES AND NO DISALLOWANCE HAS BEEN CONFIRMED OUT OF INTEREST EXPENDITURE FOR WHICH , DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER AS PER RULE 8D. CONSIDERING ALL T HESE FACTS, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A). ACCORDINGLY, THIS GROUND IS REJECTED. 28. GROUND NOS. 14 AND 15 ARE ALSO INTER CONNECTED WHICH READ AS UNDER: 14. BECAUSE 'CIT(A)' HAS ERRED IN LAW AND ON FACTS IN ISSUING 'NOTICE OF ENHANCEMENT' AND IN PURSUANCE OF SUCH 'NOTICE OF ENHANCEMENT', HOLDING THAT THE 'APPELLANT' WAS NOT ENTITLED TO DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT. 15. BECAUSE ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE 'APPELLANT' WAS LIABLE TO BE HELD AND TREATED AS A COMPANY ENGAGED IN THE BUSINESS OF 'PROVIDING LONG - TERM FINANCE' AS ENVISAGED IN SECTION 36(1)(VIII) OF THE ACT AND ITS CLAIM FOR DEDUCTION THERE UND ER (AS HAD DULY BEEN ALLOWED BY THE ASSESSING OFFICER WHILE MAKING SCRUTINY ASSESSMENT) WAS DESERVED TO BE UPHELD AND DIRECTION GIVEN BY THE CIT(A) FOR WITHDRAWAL OF THE SAME IS WHOLLY ILLEGAL. 29. IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT PA RA NO. 43 TO 48 OF THE WRITTEN SUBMISSIONS ARE RELEVANT FOR DECIDING THE ISSUE. HE ALSO SUBMITTED THAT THIS CLAIM WAS ALLOWED IN EARLIER YEARS AND THEREFORE, THE SAME SHOULD BE ALLOWED IN THE PRESENT YEAR ALSO. HE PLACED RELIANCE ON THE TRIBUNAL DECISION IN ASSESSEES OWN CASE IN I.T.A. NO.642/LKW/2010 DATED 23/12/2008 AVAILABLE ON PAGE NO. 281 TO 291. HE ALSO SUBMITTED THAT THE RELEVANT PAGES ARE PAGE NO. 286 TO 288 OF THE PAPER BOOK. 30. AS AGAINST THIS, IT WAS SUBMITTED BY LEARNED D.R. OF THE REVENUE THAT RES JUDICATA IS NOT APPLICABLE IN INCOME - TAX PROCEEDINGS. HE ALSO SUBMITTED THAT IN THE PRESENT CASE, THERE IS NO LOAN OR ADVANCE GIVEN BY T HE ASSESSEE. 41 HENCE, THE PROVISIONS OF SECTION 36(1)(VIII) ARE NOT APPLICABLE IN THE PRESENT CASE. HE ALSO SUBMITTED THAT ON PAGE NO. 260 TO 272 OF THE PAPER BOOK IS A SAMPLE COPY OF LEASE DEED EXECUTED BY THE ASSESSEE COMPANY IN FAVOUR OF ALLOTTEES AND I N PARTICULAR OUR ATTENTION WAS DRAWN TO PAGE NO. 262 OF THE PAPER BOOK AND IT WAS POINTED OUT THAT AS PER THE THIS, LAST INSTALLMENT IS PAYABLE ON 01/07/2009 AND THE LEASE DEED IS DATED 27/12/2004. HE SUBMITTED THAT HENCE IT HAS TO BE ACCEPTED THAT TOTAL INSTALLMENTS ARE TO BE PAID BY THE ALLOTTEES BEFORE COMPLETION OF FIVE YEARS FROM THE DATE OF EXECUTION OF LEASE DEED AND EVEN IF IT IS CONSIDERED LOAN, THE SAME IS NOT LONG TERM LOAN OR ADVANCE AS REQUIRED AS PER CLAUSE ( H ) OF EXPLANATION TO SECTION 36(1) (VIII) OF THE ACT. HE PLACED RELIANCE ON A JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF 1 SCC 236. HE ALSO PLACED RELIANCE ON A TRIBUNAL DECISION RENDERED IN THE CASE OF TAMILNADU POWER FINANCE & INFRASTRUCTURE DEVELOPMENT CORPN. LTD. VS. ACIT [2013] 143 ITD 147. 31. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. W E FIND THAT IN A PAPER BOOK OF 381 PAGES SUBMITTED BY THE ASSESSEE , ONLY ONE SAMPLE LEASE DEED EXECUTED BY THE ASSESSEE IN FAVOUR OF THE ALLOTTEES IS MADE AVAILABLE ON PAGE NO. 260 TO 272 OF THE PAPER BOOK. T HIS LEASE DEED IS DATED 27/12/2004 AND AS PER CLAUSE (1) OF THIS LEASE DEED , THE OUTSTANDING PREMIUM OF RS.12,71,250/ - WAS TO BE REPAID BY THE ALLOTTEE IN 10 EQUAL INSTALLMENTS OF RS.1,27,125/ - EACH AND THE LAST INSTALLMENT IS PAYABLE ON 01/07/2009 ALONG WITH THE INTEREST @15% PER ANNUM. HENCE, AS PER THE FACTS OF THIS LEASE DEED AVAILABLE IN THE PAPER BOOK, IT IS SEEN THAT EVEN IF IT IS ACCEPTED THAT ALLOWING INSTALLMENT FACILITY TO THE ALLOTTEE OF LEASE BY THE ASSESSEE COMPANY IS GI VING LOANS AND ADVANCES THEN ALSO , THIS IS NOT A LONG TERM FINANCE AS PER CLAUSE ( H ) OF EXPLANATION TO SECTION 36(1)(VIII) BECAUSE AS PER THIS EXPLANATION , LONG TERM ADVANCE HAS BEEN DEFINED AS ANY LOAN OR ADVANCE WHERE THE TERMS UNDER WHICH M ONEYS ARE LOANED OR ADVANCED PROVIDE FOR REPAYMENT ALONG WITH INTEREST THEREOF DURING A PERIOD OF NOT LESS THAN FIVE YEARS. IN THE 42 PRESENT CASE, THE REPAYMENT IS TO BE MADE IN A PERIOD LESS THAN FIVE YEARS AND THEREFORE, THIS CANNOT BE ACCEPTED AS LONG TE RM FINANCE. SINCE ONLY A SAMPLE COPY OF ONLY ONE LEASE DEED IS MADE AVAILABLE TO US, WE ACCEPT THAT ALL OTHER LEASE DEEDS ARE SIMILAR. IN THE LIGHT OF THESE FACTS, WE HAVE NO HESITATION IN HOLDING THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 36(1)( VIII) OF THE ACT. ACCORDINGLY, GROUND NO. 14 & 15 ARE REJECTED. 32. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS DISMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 5 /0 9 /2014. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR